La Française: Back to business

La Française: Back to business

15 januari 2024

Financiële markten algemeen
Wall Street beurs.png

Market consensuses are often misleading, and last year was no exception, with US growth finishing above 2.5%, well above the 0.3% forecast anticipated in early 2023. Due to the robust economic strength coming from the US, risky assets also outperformed market expectations, with equities generally outperforming bonds.

Currently, the market consensus seems to be as follows: a widespread soft landing, i.e. positive but below-potential growth among developed economies, with inflation gradually returning to the target set by central banks, which will enable them to rapidly initiate a rate-cutting cycle.

This last point certainly raises our greatest concern, particularly in the United States. The rapid disinflation witnessed in 2023 primarily stems from very strong negative base effects that are not expected to be repeated in 2024. The only exception could be further falls in commodity prices, a scenario which we find unlikely given the extremely negative stance on crude oil investors already hold.

A fall in inflation in 2024 – particularly core inflation – may encounter a further challenge in ongoing tensions on the labour market. Wage inflation remains high (this is also the case in Europe, at least in the southern countries), resulting in inflation affecting services sectors. This could make market estimates regarding the trajectory of the Fed's key interest rates a bit too optimistic.

In our view, the US economy is unlikely to weaken over the foreseeable future. The employment market is still in very good shape, with gains in purchasing power for households. The latter still have significant surplus savings (estimates are constantly being revised upwards) along with historically low costs in servicing their debt. In the past, a falling dollar has been a good indicator of future economic activity, and it now seems to signal a rebound in activity indicators, particularly in manufacturing.

However, we must not forget the lag effects of restrictive monetary policies, which should have a negative impact on the cycle in 2024. So far, everything seems to be 'under control', but that could quickly change, as the US regional bank crisis in March 2023 reminded us.

The situation in the eurozone looks fairly stable. The region is experiencing very weak growth, and leading indicators suggest that this trend will continue. The job market, which had been fairly buoyant until recently, seems to have deteriorated in France and Germany over the last few months. This should help the disinflationary trend to continue, although the end of the various plans aimed at reducing the impact of rising energy prices could also make disinflation less straightforward than anticipated.

China is showing only a few signs of acceleration. The latest measures taken by the government to support the property market are a step in the right direction, but they are not enough to restore confidence among Chinese consumers and investors. The latest credit impulse figures confirm that China's economy is no longer deteriorating, but it is not undergoing any significant upturn either.

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