Saxo Bank warns of fragile global economic growth in Q3 2024
Middle East also factored in
Saxo Bank has released its latest outlook for Q3 2024, which paints a cautious picture of the global economy amidst what the Danish bank terms a ‘sandcastle economy’.
Despite robust growth in sectors such as defence, AI, and pharmaceuticals, Saxo’s strategy team highlights significant vulnerabilities that could threaten the stability of the current economic momentum.
In his macro note, Peter Garnry, chief investment strategist at Saxo, elaborated on the concept of ‘sandcastle economics’, stressing the precarious nature of the current economic expansion.
“While economic growth appears stable in the near term, there are looming threats that could dismantle our sandcastle economy,” Garnry warned.
Central to Saxo’s concerns are unsustainable fiscal policies in the United States, geopolitical tensions, and demographic shifts that could undermine long-term economic stability. The bank’s analysis suggests a ‘two-lane economy’, where thriving sectors contrast sharply with struggling ones, complicating monetary policy decisions.
Sectoral Insights for Q3 2024
Commodities: Saxo anticipates continued strength in energy and grains, supported by robust demand and production challenges. Ole Hansen, Saxo’s head of commodity strategy, highlighted the resilience of crude oil, bolstered by OPEC’s strategic pricing and seasonal demand spikes related to mobility and cooling needs. While industrial metals pause, their resurgence hinges on recovery in Chinese demand.
Equities: Concerns over market vitality reminiscent of the dot-com bubble persist as speculative fervour fuels US tech, crypto, and meme stocks. Garnry cautioned about high US equity valuations, favouring European equities due to anticipated repricing following ECB rate adjustments and a projected growth rebound.
Fixed income: With inflation uncertainties lingering, Althea Spinozzi, Saxo’s head of fixed income strategy, highlighted stable but elevated US Treasury yields. She recommended focusing on high-quality credit and short-term duration amidst volatile bond markets, with investment-grade corporate bonds likely to remain resilient amid inflation hedging.
FX markets: Saxo predicts a potential downturn for the US$, benefiting risk-on currencies like AUD and NZD against safe-havens like JPY and CHF. Charu Chanana, head of FX strategy at Saxo, pointed out the attractiveness of EM carry trades despite narrowing yield differentials, advising cautious risk management in a fluctuating FX landscape.
According to Damian Hitchen, CEO of Saxo Bank MENA: “The region must navigate persistent inflation and geopolitical uncertainties amidst a complex global financial landscape.”
He stressed the importance of vigilance in managing risks while capitalising on growth opportunities in key sectors like energy and agriculture.
Featured image: Saxo Bank’s analysis suggests a ‘two-lane economy’ in which thriving sectors contrast sharply with struggling ones, complicating monetary policy decisions.Bottom of Form Credit: Bernd Dittrich
