The Big-Two In 2024 – December 11, 2023

Last week we updated our outlook for the two biggest global economies, and both appear set for another year of solid growth, despite widespread economic pessimism in the marketplace, and expectations for much lower U.S. policy rates in 2024.

Our China report highlighted that economic momentum will stay reasonably positive in 2024. However, unlike the experience this year, 2024 should witness a broadening of positive momentum for forward corporate earnings. There are thus good prospects for positive performance from unloved and undervalued Chinese stocks ahead, although their low beta nature means that EM ex-China stocks will do better, especially those exposed to an improving global trade cycle.

While having performed far better than the extremely bearish expectations in late-2022, when recession fears were running high, the U.S. economy is still on track for yet another good year, as highlighted in our report on the U.S. outlook. We continue to expect above potential growth over the year, and are less sanguine on the inflation outlook than the consensus, which sees a continuation of the current downtrend towards the Fed’s inflation target of 2%. A key distinction in our view is that we do not anticipate that the economy will need policy rate cuts next year.

Net: it is still premature to  bet on a global recession and to expect sustainably lower global bond yields. For now, equites will benefit from current hopes for a Goldilocks outcome, but…stay tuned.


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