In the second issue of our quarterly publication PERSPECTIVES, we provide an update on our economic and investment outlook for the third quarter of 2024 and beyond.
Introduction
After the soft patch of the last few quarters, we think the global economy is recovering. Interestingly enough, U.S. exceptionalism remains true as the latest data batch came in on the weaker side – with the notable exception of the most recent labour market report. The markets, however, have moved on already as they try to see beyond the current macroeconomic quarter.
Looking ahead to 2025, we see Europe at roughly 1% growth and Germany tripling its growth rate from 0.4% to 1.2%. China is growing at 5%. in the background and hence the global macro framework for stocks is supportive (not too cold, not too hot).
We, and arguably the central banks, see quite a few problems related to prices, though. Rate decisions on hold and/or only very cautious cutting decisions are reasonable in light of second-round risks related to wages, ongoing expansionary fiscal policy and geopolitical risks for energy markets. Bonds seem to be in equilibrium and in line with medium-high inflation rates.
Equities and earnings may be stable for longer as the economy is doing just fine and margins remain relatively high. No view is without risk of course – 10yr yields toying with 5% is one of them, elections, trade frictions and geopolitics are some of the many others.
In this context, we outline our forecasts for the third quarter of 2024 on the macroeconomic front, as well as for equities, fixed income, commodities and foreign exchange:
Macroeconomics: Moving on
Growth: robust in the U.S., reviving in Europe and Japan.
Last rounds of disinflation: stickier in the U.S. than in the Eurozone.
ECB ahead in easing cycle but expect the Fed to catch up soon.
Fixed Income: Buy and carry
- Yield curves to normalise as cuts continue.
- Longer-end yields to stay high for longer.
- Carry to provide majority of the return potential.
Equities: Higher for longer
Equity market performance to remain attractive.
Robust earnings growth an important contributor.
Geopolitical issues and elections could cause short-term volatility.
Commodities: Time for metals to shine
- Balanced outlook for oil at current price levels.
- Strong Asia demand along with rate cuts a boon to gold.
- Copper to benefit due to its exposure to emerging technologies.
Currencies: Volatility remains low
Synchronised rate cutting cycles should keep the lid on FX volatility.
JPY remains on the defensive due to persistently high yield differentials.
Low inflation environment in China and U.S. elections to weigh on CNY.
