Investment Monthly
Closer to cuts?
09 April 2024
Key takeaways
- Our baseline macro scenario is for a soft-ish landing. But the data flow is likely to be bumpy and the outlook remains uncertain. Risk asset valuations are stretched in many areas. That means that any deterioration in corporate fundamentals could create market volatility
- That calls for a ‘defensive growth’ positioning in portfolios. This includes selective exposures to fixed income, risk assets, and private markets. We see opportunities outside the US, especially in the EM and Frontier space
- We see a key portfolio role for alternatives (especially private credit, hedge funds, infrastructure, and real estate)
Macro Outlook
- Latest data hints at a “soft landing” for the economy. The key conditions required are (1) continued steady economic growth, (2) ongoing disinflation, (3) solid labour markets, and (4) a positive profit picture
- Economic risks could persist later in the year, notably in the US, even if the soft landing is secured. Geopolitics, elections and restrictive policy could all impact the economic and market outlook
- Economic performance remains divergent in emerging economies. India looks set to be the fastest growing economy in 2024, whilst China faces several growth headwinds, including the struggling property sector, low consumer confidence and lingering deflation pressures
Policy Outlook
- Rate markets have priced-out cuts from the major central banks amid stronger macro data and central bank comments. But central bankers are still eyeing a summer policy pivot. We see the first interest rate cuts in mid-2024, with policy easing continuing in H2
- Fiscal policy is expected to act as a slight drag on growth in 2024 in western economies. But we do not expect a return to 2010s-style austerity
- EM central banks have been leading the global easing cycle, with rate cuts in Latam and Europe. We expect this to continue. Asia central banks should ease policy during H2 2024. Policy support in China remains measured and targeted