Stock and currency markets in 2024 are divided by interest rates and the US economic recession

(TBTCO) – Investment banks and asset managers offer widely varying stock market and currency forecasts for 2024, reflecting deep divisions over whether the US economy will enter a recession. Has the recession been foretold for a long time and dragged the whole world along with it?

Stock and currency markets in 2024 are divided by interest rates and the US economic recession
Photo: Reuters/Lucas Jackson

Trien US economic expectations will dominate the market

The lack of consensus among analysts and forecasters is in stark contrast to a year ago, when most predictions of a U.S. recession and rapid interest rate cuts failed to materialize. The world’s largest economy still grew by 5.2% in the third quarter of this year.

This year, organizations have released a series of forecasts on the US interest rate path and the performance of global assets affected by the actions of the US Federal Reserve (FED). .

The current US policy interest rate is at 5.25%-5.50%, the highest in 22 years. According to CME FedWatch Tool, traders are predicting the Fed will reduce interest rates by 25 basis points in early March 2024.

Investors are currently considering what the Fed’s interest rate plan will be at its next and last meeting of the year on December 13. Most market participants expect the US central bank to leave interest rates unchanged.

As a result, market participants are bracing for a bumpy start to the new year after last month’s sharp rise in both stocks and bonds, on the basis of confidence that inflation and interest rates are above downward momentum.

Sonja Laud – investment director of Legal & General Investment Management, said: “Whether the US economy has a hard landing or a soft landing will dominate the market.” However, according to her: “The story is still unclear”, noting that if the current interest rate forecast “changes significantly, it will create significant volatility”.

Investors are increasingly interested in protecting their portfolios from rising stock market volatility ahead, options trading data shows.

Opposite views

Economists polled by Reuters forecast an average of 1.2% U.S. GDP growth in 2024. But while forecasters agree that the Fed’s sharpest rate-hike cycle in decades will slow, they are divided on whether 2024 will include several quarters of recession. Push the FED to cut interest rates and weaken the dollar?

Amundi, Europe’s largest asset manager, now predicts a US recession in the first half of 2024, meaning the group has a negative view on the dollar and prefers new market assets. floating.

In terms of foreign exchange, the Japanese Yen will be the market’s bright spot as the Bank of Japan is expected to abandon its extremely loose monetary policy, Amundi CIO Vincent Mortier said. The yen is trading around 147 yen per dollar, not too far from a 30-year low.

However, Morgan Stanley sees no economic recession and believes that the FED can keep interest rates at high levels next year. The leading US investment bank said that the dollar index increased to 111 points from the current level of 104, the euro decreased to 1 dollar and the yen only recovered moderately to 142 per dollar.

Stock and currency markets in 2024 are divided by interest rates and the US economic recession
Investors have poured money into US Treasury bonds because they believe the FED’s interest rates have peaked.

Will stocks increase or decrease?

As for U.S. stocks, which drive world equity markets, forecasters are divided between what Citi head of trading strategy Stuart Kaiser calls “converts and skeptics.” filed” of the strong recession consensus last year. “One investor remains very committed and believes that, if it doesn’t happen this year, it has to happen next year,” Kaiser said.

Deutsche Bank predicts a mild recession in the US economy in the first half of 2024 and an interest rate cut of up to 175 basis points, along with lower borrowing costs, will push the S&P 500 stock index up 5,100 points. . The S&P 500 has increased 19% this year, to 4,567 points.

According to portfolio manager Paul Gambles, co-founder and managing partner at MBMG Group, the Fed needs to cut interest rates at least five times next year to avoid sending the US economy into recession.

JP Morgan believes a recession is possible and the S&P ended the year at 4,200, while Goldman Sachs sees only limited recession risks.

According to the Blackrock Investment Institute (BII), equity analyst estimates for S&P 500 profits are currently the most dispersed since the Covid-19 pandemic.

Ms. Sonja Laud said that LGIM, a company that manages about 1.5 trillion USD in assets, is undervaluing stocks and predicting a recession in the US economy. Meanwhile, some investors have moved beyond the US economic debate to seek other opportunities.

Luca Paolini, chief strategist at Pictet Asset Management, said the company’s big goal is to profit from European stocks that it believes are undervalued.

Bonds return

Most economic forecasters agree that the global inflation fever is over. But whether this means a significant cut in interest rates, which typically causes bond prices to rise as yields fall, is not something investors agree on.

​Bond giant PIMCO puts the likelihood of a US recession by 2024 at 50% and recommends government bonds over stocks.

HSBC fixed income strategists target a 3% yield on benchmark 10-year US Treasuries by the end of 2024, down from about 4.3% today.

​However, Adrian Gray – global investment director at Insight Investment Management, said the government bond market has been too volatile.

“We are seeing the FED, the European Central Bank and the Bank of England all cutting interest rates from around the third quarter of next year” – Gray said, emphasizing: “Currently, the main bond market The government is pricing it higher than that and expects yields to rise “a little” from now on.”

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