The financial markets are currently pricing in sharp interest rate cuts over the course of the year. In reality, however, the last mile in reaching the inflation target will be challenging and will determine the future interest rate path. Increased volatility is therefore to be expected on the bond market. We consider US government bonds to be attractively valued. The general yield level makes bond investments interesting. In the case of corporate bonds, we favour bonds in the BBB rating segment. The global equity markets should also achieve gains in the 1st quarter.
Economy
Despite a slowdown in the 4th quarter, the US economy is still solid and thus largely unaffected by the sharp rise in interest rates and real wage losses since 2022. However, the support provided by accumulated savings could soon run out, although rising real wages should also favour the economy this year. We therefore expect only a slight slowdown in growth this year. Inflation should continue to fall over the course of the year. However, the extent of this will depend on the price momentum for services. We only expect GDP growth of +0.7% in the eurozone in 2024. Over the course of the first half of the year, slight impetus should come from industry. Private consumption will benefit from real wage increases and a robust labour market this year. The inflation rate has fallen significantly in recent months, but we expect a more volatile trend in the first half of 2024. The last mile on the way to achieving the inflation target will be challenging. The ECB will focus on the development of wages and corporate profits.
Bonds
We expect the first interest rate cut in the US in July. A moderate slowdown in the US economy should increasingly remove the basis for inflation and a further fall in inflation should then trigger swift interest rate cuts. Overall, we are forecasting -100 bp by December. The bond market is currently pricing in stronger interest rate hikes and is very volatile. We expect further swings as uncertainty will remain high. The ECB should begin slowly cutting interest rates from June onwards due to the still quite high core inflation. We do not expect a rapid normalisation of interest rate policy until after September as price pressure eases. German government bonds have been volatile in recent months and have thus followed the direction set by the USA. The expected economic recovery should cause yields on medium and longer maturities to rise slightly. We consider short maturities to be attractive.
Currencies
The expected moderate recovery of the eurozone economy and slight slowdown in growth in the US should support the euro against the US dollar. We are also forecasting a strengthening of the euro against the Swiss franc. Gold will benefit from the expected interest rate cuts in the 1st quarter.
Equities
In view of the strong sales and earnings growth forecast for 2024, we expect the global equity market index to grow moderately in the 1st quarter, in a range between 0% and +5%. We favour quality stocks from the healthcare, technology and consumer sectors.
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