Economic and Market Review

An Overview of the Global Economic Landscape

As we reflect on the initial quarter of 2024, we observe a complex global scenario characterised by robust economic indicators amidst rising geopolitical tensions. In the United States, the economy continued its surprising strength from previous quarters, with GDP growth estimated at around 3%. This growth is supported by a vibrant labour market that remains robust, underscoring the resilience of the American economy despite external pressures.

In Europe and the United Kingdom, the economic landscape appeared brighter, or at least less gloomy, compared to recent years. The UK, in particular, showed signs of a potential economic turnaround. Consumer spending has picked up, which may signal a rebound in the domestic economy. Inflation rates, which have been a persistent concern, have started to decrease more noticeably, offering hope that the worst may be over. Moreover, the property market in the UK is showing signs of resurgence, a positive indicator for overall economic health.

However, this quarter has also been shadowed by deteriorating international relations and increasing instability. Tensions between Western nations and China have escalated, marked by mutual accusations and trade restrictions, such as the potential Chinese ban on Intel products. The ongoing conflict in Ukraine and aggressive military actions in the Middle East have further strained global stability, challenging the economic resilience of affected regions.

Despite these geopolitical challenges, the focus for financial markets has remained largely on interest rates. The Federal Reserve in the United States has hinted at the possibility of rate cuts later in the year, surprising some observers given the strong economic and employment figures. The debate over the timing and necessity of these cuts has become a significant point of discussion, particularly as the US approaches a major election.

In a surprising development, the Bank of Japan opted to increase interest rates, a notable pivot after decades of battling deflationary pressures. This decision reflects a growing confidence in the Japanese economy, which has seen improvements in wage growth and economic activity after years of stagnation.

Detailed Analysis of Bond and Equity Markets

The bond markets during the first quarter presented a dynamic and complex picture. Initial optimism about imminent rate cuts led to early enthusiasm, but this was quickly tempered by economic data indicating continued resilience in major economies. This led to a sharp correction, particularly in longer-duration bonds, which are more sensitive to interest rate changes.

Later in the quarter, inflation data from several developed economies, including Australia, the UK, and Switzerland, indicated a significant drop, reinforcing the belief that enough measures have been taken to curb inflation. This has revived investor interest in bonds, with the current yield environment offering more attractive risk-reward opportunities compared to the nearly zero interest rate policies of the past decade.

Equity markets have also presented an optimistic outlook, with significant rallies in the US driven by major AI-associated companies like Apple and Microsoft. However, performance disparities within this group have prompted a more nuanced market analysis. The UK market received a boost from fiscal policy announcements and potential rate cuts, pushing the FTSE 100 to record highs and signalling renewed investor confidence.

In Asia, challenges persisted in Chinese and Korean markets due to economic slowdowns and political uncertainties. However, towards the end of the quarter, signs of policy support and easing pressures provided a boost, leading to rallies in these markets. Japan’s equity market continued its impressive performance, reaching levels not seen since 1989, driven by corporate reforms and a focus on shareholder value.

Looking Ahead to the Rest of 2024

As we navigate through 2024, the global landscape is fraught with uncertainties stemming from numerous elections, economic shifts, and ongoing international tensions. However, as always, these challenges also present opportunities.

Our positioning

Our strategy remains focused on leveraging expected interest rate cuts and taking advantage of what we believe will be an improving economic outlook in major markets like the US and UK. We continue to advocate for a diversified investment approach, which allows us to manage risks effectively while seeking growth opportunities across different asset classes. This balanced strategy is essential for navigating the uncertain times ahead and capitalising on the opportunities that arise from these dynamic conditions.