"Goldilocks" hopes boost stock markets

At a glance

Economics

• US economy: soft landing ahead, new momentum in the second half of 2024. China slowly stabilising.
• Europe: economy at low point; inventory correction in industry ends at the beginning of 2024; upturn from Easter.
• Inflation declines; interest rates peak. Fed cuts interest rates from spring 2024; ECB eases later and more cautiously.

Equities

• Equities rally strongly in November. Small caps, cyclicals and interest rate-sensitive stocks were clearly ahead.
• Further potential limited after strong movement. Late effects of the tight interest rate policy continue to make markets vulnerable.
• We continue to feel comfortable with the reduced equity underweight. Small caps more attractive again as the economy recovers.

Bonds

• A further decline in yields on safe government bonds in view of hopes of interest rate cuts and a cooling economy.
• Increased interest rate volatility on both sides of the Atlantic continues to argue for duration close to neutral.
• IG inflows remain positive for the year, HY – almost unchanged. Emerging market local currency bonds still preferred.

Commodities

• Geopolitics and falling real interest rates boost gold. Only a turnaround by the central banks offers further potential.
• Demand worries have recently outweighed supply risks. After a strong rally, crude oil only has potential again in the medium term.
• Industrial metals remain sensitive to the economy, but the decarbonisation trend is supporting the price trend.

Currencies

• The USD remains strong due to the geopolitical crises, among other factors. Inflation data recently caused some movement.
• EUR/GBP countermovement. The EUR has to accept a setback, also due to the euro inflation data.
• After an interim recovery, the euro has fallen back below the 0.95 mark against the franc.