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The main theme for 2024 will be the expectations for easing of interest rates by the Federal Reserve (Fed) starting in mid-2024. This is set against the backdrop of slowing US growth as inflation stabilises further.
Other major central banks are likely to follow suit with differing timelines, while the Bank of Japan is likely to normalise monetary policy in early 2024, without any disorderly consequences.
China’s situation remains challenging with growth likely to stay soft in 2024 and that there will be a ramp-up of policy support measures to manage risk.
We have raised equities to Neutral in our asset allocation. On a full-year basis, equities are likely to outperform cash. After a robust 2023, we look to add to equities on weakness in 2024. Our bond allocation remains an Overweight while cash is reduced to an Underweight. The allocation to alternatives remains an Overweight.
Against the backdrop of a prolonged late economic cycle, non-directional trades like outperformance payoffs and 100% minimum redemption notes can help investors position defensively while staying engaged with markets.
With a view to add on weakness, we remain Neutral on US equities. We also stay Underweight on European equities, Overweight on Japanese equities and Neutral on EM Asian equities.
For Developed Markets (DM), we remain Overweight on DM USD IG, with the view for yield-driven demand to remain strong and as such, will limit excessive credit spread widening on quality names.
We stay Underweight on DM USD HY as funding conditions and liquidity positions for weaker companies could be challenged.
We are Overweight EM Asia IG given its meaningful role as portfolio stabilizers and the much desirable up in quality trait it possesses.
We remain Neutral on EM Asia HY and see pockets of value in select Indonesian property developers, Indian renewables, and commodity/infrastructure credits but caution against chasing performance in EM Asia HY laggards such as China HY CRE.
We adjust our positive Brent forecasts to more modest levels of USD 85 / bbl in 1Q and 2Q24 and USD 90 / bbl in 3Q and 4Q24. We keep our positive view for gold and forecast gold at to USD 2,050 / oz in 1Q24, USD 2,100 / oz in 2Q24, USD 2,150 / oz in 3Q24 and USD 2,200 / oz in 4Q24.
We maintain our mild negative outlook for Copper, forecasting LME Copper at USD 8,000 / MT in 1Q and 2Q24 and USD 7,000 / MT in 3Q and 4Q24.
We are confident that DXY has already peaked at around 107 in 4Q23 and the path is clear for USD weakness in 2024. Meanwhile, we expect lower outright rates amidst monetary policy easing across 2024. We expect 3M compounded SOFR and 10Y US Treasuries yield drifting lower to 4.73% and 4.00% respectively by 4Q24.
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