Monthly economic and strategy forecast update
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We believe that most central banks (including the Fed, ECB, SNB, though not the Bank of England) have reached peak policy rates. As the economic data is still quite resilient in the United States and inflation is proving to be sticky globally, we expect central banks to keep a hawkish bias and to cut rates from mid-2024 on only and at a slower pace than in past cycles. For bond markets, this implies that the trajectory for yields will be somewhat more elevated, yet we still expect meaningfully lower bond yields over the next 6-12 months. In currency markets, US economic resilience should support the dollar this year, while the euro continues to face headwinds. We remain positive on the Japanese yen and the Swiss franc. On the equity side, we upgrade our year-end target for the S&P500 to 4200, from 4000, on the back of the improved US outlook. Yet we remain cautious given that valuations are stretched and near-term earnings upside is limited. Still, once the cycle has troughed, equities should recover gradually. We expect the S&P500 to regain its early – 2022 highs at around 4800 by the end of 2024. Finally, we highlight the deteriorating fundamentals for the German economy relative to its peers, and the underperformance of German equities. We find that the structural issues will be difficult to reverse quickly, and would therefore have a cautious view on the German equity market.
