Market Compass October 2024

Highlights:

• The rate cut cycle is up and running, as inflation converges to target. Governments face challenges, such as large twin deficits in the US, a property overhang in China, a broken economic model in Germany and unsustainable fiscal trends in France.
• The financial outlook partly depends on the results of the US elections. A split government is the most likely outcome. A full Democrat victory would be bearish USD, while a Republican sweep would challenge our ‘buy the dips’ approach to Treasuries.
• The global growth cycle should prove resilient and the announced fiscal stimulus in China has reduced tail risks. We now see upside and downside medium term risks for inflation. Rates should become less volatile and normalise but may not return to the pre-Covid lows.
• The pricing of aggressive rate cuts into end 2025 has pushed bond yields lower. We see them skewed to the downside over the coming year. We continue to prefer credit over government bonds. We would use the usual pre-election correction to increase long positions in stocks.

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