Has the Euro Area’s Economy Bottomed?
Yes, we believe that the euro area’s economy bottomed either in fourth quarter 2023 or first quarter 2024.
Authored by: Thomas O'Mahony
The United Kingdom and Japan Entered Technical Recessions in Q4
UK GDP fell by more than expected in fourth quarter 2023, which pushed the country into a technical recession. It joined fellow G7 economy, Japan, which had earlier undershot expectations and delivered a second consecutive quarter of negative growth.
2024 Outlook: Public Equities
We expect global equity performance will be below its long-term median level, but we believe investors should hold equity allocations in line with policy targets. Within equities, we see opportunities in developed value, developed small caps, and China. We doubt European and emerging markets ex China equities will outperform, and we believe the share of active strategies that outperform will increase.
2024 Outlook: Currencies
We expect the US dollar and gold will more or less hold their values, given our economic expectation and the many geopolitical risks. We believe the yen will appreciate, and we expect the thawing crypto winter will fully transition to a spring.
Currency Views and Valuations
This chart book examines historical currency momentum, valuation, and fundamentals in nine key currencies—US dollar (USD), British pound (GBP), euro (EUR), Swiss franc (CHF), Japanese yen (JPY), Australian dollar (AUD), New Zealand dollar (NZD), Canadian dollar (CAD), and Singapore dollar (SGD)—to help investors understand how these currencies behave against other major currencies.
Key Central Bank Policy Rates Approach Cyclical Peak
Over the past two weeks, central banks in the United States, United Kingdom, euro area, and Japan have all held monetary policy meetings. The communications following these meetings retained a hawkish bias, suggesting further policy tightening may be necessary—except for the Bank of Japan—however, additional interest rate hikes will likely be much less frequent for the remainder of this cycle. Despite this reality, we do not think major central banks will be quick to cut interest rates next year.
Do Recent Upward Revisions to the United Kingdom’s GDP Mean the Outlook Is Brighter?
No. Although GDP revisions showing that the UK economy recovered more quickly and strongly from the COVID-19 period than was initially thought are welcome, the country faces headwinds to growth in the coming quarters. We continue to recommend holding UK equities at benchmark weights.
Euro Area Sinks into a Technical Recession
The latest estimate of first quarter GDP indicates that the euro area fell into a technical recession.
Do Recent Central Bank Meetings Alter Our US Dollar Outlook?
No, we expect that while the US dollar should decline from its current elevated level over the medium term, there are factors that will continue to provide it with support in the short term. If our expectations are met, later this year or early next year should be an opportune time to consider positioning portfolios to benefit from a weaker dollar.
European Bank Stress Adds to Economic Growth Challenges
On 20 March, investors awoke to news Swiss authorities had used emergency measures to push through a hastily arranged merger of Credit Suisse and UBS. Following two recent bank failures in the United States, the announcement raised questions over the health of European banks and the broader economy.