Saxo Bank: Central banks are poised for rate cuts in 2024
Dynamic investment landscape yet looms this year
Deviating from the tightening stance observed in 2023, central banks are set to initiate rate cuts in 2024, signalling a shift in the global economic landscape, according to Saxo Bank’s newly released Q1 2024 Quarterly Outlook for global markets.
As the repercussions of historically high real yields and the lag effect of monetary policy unfold, savvy investors are eyeing opportunities across various sectors, the multi-asset investment specialist reports.
Steen Jakobsen, Chief Investment Officer, Saxo Bank, said: “The once bright future now appears bleaker than ever. Geopolitical conflicts are increasing without resolution. Despite a widespread desire for political change, evident in the rise of far-left and far-right parties, outcomes remain disappointingly similar.
“This is because most political agendas offer nothing more than repeated and watered-down versions of past proposals for change. Even cultural life is dominated by repeats and reruns. Productivity in industry, culture, and politics has all but disappeared.”
In Q4 2023, Saxo’s call for investors to take a long position on bonds proved prescient. Recognising the unsustainability of historically high real yields, driven by a lack of robust productivity and population growth, the global economy is now grappling with the consequences. The delayed impact of high bond yields in 2023 prompts central banks to reevaluate, setting the stage for anticipated policy rate cuts in 2024.
The investment landscape for 2024 is characterised by complexity and challenge, with a myriad of risks and uncertainties. However, amid the turmoil, discerning investors can find opportunities.
On the equity front, investors are urged to embrace the potential in emerging markets such as India, Mexico, Brazil, and Vietnam, riding on the coattails of the global reshoring trend. Yet, caution is advised about US mega caps, as their valuations are deemed unsustainable.
In fixed income, strategic positioning for a bull steepening of the yield curve is recommended, emphasising extending the duration of bond portfolios to capitalise on emerging trends. Cautiousness is warranted for investment-grade and high-yield bonds due to unattractive spreads over sovereigns and potential economic deceleration.
Currency markets are expected to witness a weakening US dollar in 2024. Forecasts suggest the EURUSD could reach 1.12 in early Q1 2024, with EURJPY and GBPJPY remaining supported. Meanwhile, Asian currencies may rebound with a weakened USD and signs of recovery in China.
In the commodities sector, precious metals are poised for renewed demand, driven by expected declines in the Fed Funds Rate and actual yields. Platinum faces projections of deficits and tight market conditions, while copper maintains a bullish outlook in 2024 due to the prospect of a supply deficit.
Geopolitics will be pivotal in the global economy and financial markets in 2024.
The rise of populist sentiment, stemming from economic discontent and perceived failures of traditional centre parties, is crucial to watch. Despite challenges, investing in China presents opportunities in technology, advanced manufacturing, energy, and green metals, with the Third Plenum serving as a crucial indicator of China’s medium-term development strategies.
Investors are advised to monitor geopolitical tensions closely as they navigate the intricate terrain of 2024’s dynamic business landscape.
Damian Hitchen, CEO at Saxo Bank MENA, stressed: “While geopolitical uncertainties persist, the Middle East’s strategic position in energy markets and drive toward economic diversification offer compelling investment avenues.
“The UAE and Saudi Arabia continue to spearhead innovation and economic reforms, providing promising opportunities in technology, renewable energy, advanced manufacturing and other non-petro industries. As we navigate Q1 , we remain attentive to both the global and regional landscape and look to provide relevant and engaging insights into the Middle East] region’s resilience and strategic positioning.”
Featured image: The stage for anticipated policy rate cuts in 2024 is set. Image: Dmytro Demidko