Saxo Q1 Outlook: What happened to the future?
Saxo has today published its Q1 2024 Quarterly Outlook for global markets, including trading ideas covering equities, FX, currencies, commodities and bonds, as well as a range of central macro themes impacting client portfolios.
In Q4 of last year, Saxo called for investors to take a long position on bonds as the bank’s strategists recognised that the global economy cannot deal with historically high real yields, as productivity and population growth are simply not high enough. With a historically long lag to monetary policy, the high bond yields in 2023 are finally beginning to bite and central banks are priced to cut policy rates in 2024, changing the underlying dynamics.
Steen Jakobsen, Chief Investment Officer, commented:
“The once bright future now appears bleaker than ever. Geopolitical conflicts are increasing without resolution. Despite a widespread desire for political change, which is evident in the rise of far-left and far-right parties, outcomes remain disappointingly similar. This is because most political agendas offer nothing more than repeated and watered-down versions of past proposals for change. Even cultural life is dominated by repeats and reruns. Productivity in industry, culture, and politics has all but disappeared.”
Saxo’s main calls for Q1:
Equities: New extremes and a challenging opportunity set
- Positive on equity markets in India, Mexico, Brazil and Vietnam, as well as commodities, cyber security, and defence, as rearming, reshoring and restocking continue unabated in 2024.
- Underweight mega caps, as the AI hype has driven the S&P 500 Index weight concentration to an historical high which is unsustainable. We prefer equal-weighted equity indices, in addition to minimum volatility and quality factors.
- We are underweight Japanese equities on JPY appreciation risks. However, we like UK and European equities on valuation.
Fixed income: Bonds are on everybody’s lips
- Weakening growth, slowing inflation and an uncertain political environment will create the perfect environment for bonds to outperform other assets.
- Bond investors are presented with the opportunity to lock in one of the highest yields in more than 10 years, making it difficult for fixed-income securities to post negative returns even if yields rise slightly again.
- Deteriorating economic activity and high rates pose a threat to corporate revenues and margins. We thus favour quality, and expect the spread of lower-rated corporate bonds to widen sensibly.
FX: High yielding currencies will start losing their appeal
- USD remains a sell on rallies with extent depending on relative US economic performance more than absolute. JPY and gold have the most room to gain in a yield-driven bearish dollar environment. EURUSD could see gains to 1.12 in early Q1.
- USDJPY will remain a sell on rallies in Q1. EURJPY and GBPJPY could still remain supported as ECB and BoE stay hawkish, while AUDJPY and NZDJPY could benefit as carry trades divert away from the US.
- USD weakness, as well as any signs of a tentative recovery in China, could make room for a rebound in Asian currencies.
Commodities: Year of the metals
- Precious metals will see renewed demand amid the outlook for a lower Fed Funds Rate and lower real yields. Looking for gold to reach a fresh, record high with silver potentially receiving an additional boost from COP28 and increased spending on renewable energy.
- Platinum will experience more deficits and tight market conditions with likely recovery in ETF holdings which may push platinum’s discount to gold down by 250, taking it towards the 5-year average of around $750 an ounce.
- Bullish copper has the prospect of a supply deficit in 2024 with rising supply risks at a time of rising demand for green transformation metals, especially in China, and restocking from Western companies. Prefer underlying exposure instead of copper miners.
Macro: What happened to the future?
- Geopolitics will continue to play a major role in the economy, and financial markets will be driven to an increasing number of hotspots as the world fragments. Discontent among populations in the developed world is leading to the rise of far-left and far-right parties.
- Productivity in the key things that matter for human well-being is still disappointing with social media delivering a massively negative utility for society.
- The first half of the year poses the biggest risk to the economic outlook, while the second half comes with increased political risk from the US election that will shape geopolitics in the coming four years.
The rise of populism: Far-right parties will influence the future
- The economic fallout of globalisation and neoliberal policies left many Europeans feeling insecure and vulnerable, creating a ripe environment for populist rhetoric.
- Populist parties portrayed themselves as defenders of traditional values and exploited fears about immigration, cultural change, and the erosion of national identity.
- Traditional centre parties were perceived as out of touch and failing to address the concerns of ordinary citizens, paving the way for populist parties to emerge as the “anti-establishment” alternative.
Investing in China: Navigating Q1 amid economic challenges
- Reading from the tea leaves of the significant political meetings in the fourth quarter of 2023, China’s policy priorities show a lack of urgency for counter-cyclical initiatives.
- The Third Plenum in the first quarter of 2024 will be the litmus test for the direction of Chinese development strategies.
- Technology, advanced manufacturing, energy, and green metals are fertile grounds for investing for growth in the medium term.
Today, Saxo is an international award-winning investment firm for investors and traders who are serious about making more of their money. As a well-capitalised and profitable Fintech, Saxo is a wholly-owned subsidiary of Saxo Bank A/S, a fully licensed bank under the supervision of the Danish FSA, holding broker and banking licenses in multiple jurisdictions. As one of the earliest fintechs in the world, Saxo continues to invest heavily into our technology. Saxo’s clients and partners enjoy broad access to global capital markets across asset classes on our industry-leading platforms. Our open banking technology also powers more than 200 financial institutions as partners by boosting the investment experience they can offer their clients. Keeping our headquarters in Copenhagen, we have expanded our reach to having more than 2500 professionals in financial centers around the world including London, Singapore, Amsterdam, Hong Kong, Zurich, Dubai and Tokyo.
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