2024 will see the “third and final act of the inflation shock” story that has driven asset returns over the last three years, according to Mediolanum Irish Funds.
Global inflation is predicted to ease and prices are expected to remain within central banks’ acceptable levels at 2% by the middle of this year.
This spells positive news for investors and consumers alike, according to the firm’s Global Market Outlook.
However, rate cuts are unlikely to begin until later in the year and aggressive rate cuts in the first quarter were unlikely.
Brian O’Reilly, head of investment strategy at Mediolanum International Funds Limited, said: “The period of inflation shock that we’ve experienced since the beginning of the pandemic almost four years ago looks to be finally closing in 2024.
“We believe predictions of more aggressive rate cuts early this year may be over-optimistic as central bankers remain cautious, all our scenarios see reasons to be optimistic, with global inflation expected to fall back to an acceptable level of 2% by the middle of the year, providing potential relief for bond markets, with UK and European fixed income assets set to outperform their US counterparts.”
Equities outlook 2024: Key themes and macroeconomic trends
A slowdown in growth and falling inflation is set to reduce pressure in bond markets, the firm said, with bond yields likely to fall back, especially in the EU and the UK.
European bonds may outperform the US as it is expected the European Central Bank will cut rates more than the market currently discounts creating a softer macro backdrop, which may see European and UK fixed-income assets outperform their US counterparts.
Other predictions from the firm are that emerging market bonds could outperform.
In equity markets the firm said that despite strong earnings forecast market gains will likely harder to come by in 2024 due to high valuations in tech after a “blockbuster” 2023 and slower growth and higher valuations should curtail the equity rally seen at the end of 2023.
However, if a global recession is averted, a further equity rise may be supported by resilient consumers and by growth sectors such as technology and healthcare.
The firm also said China could be a catalyst for global equities if it can bolster its currently struggling economy. This outcome would favour European exporters, including German carmakers, and French and Italian luxury products.
“Equities are expected to stay strong despite slower growth, although questions remain as to whether tech fatigue may appear and the role China will play. Diversification and adaptability will be key tools for investors in 2024 amid significant national elections, especially in the US, and ongoing geopolitical challenges,” said O’Reilly.
