Global Financial Market Outlook 2024

Global Economic Resilience in 2023:

• Started with low global growth expectations and recession fears.
• China’s reopening, U.S. and European fiscal stimuli, and other factors stabilized growth.
• Despite challenges like interest rate hikes, wars, and crises, risk markets performed positively.

Concerns for 2024:

• Anticipation of a global growth slowdown in early 2024 due to monetary policy lags.
• Falling inflation expected to prompt central banks to ease policy gradually throughout the year.

Market Outlook and Caution:

• P. Morgan expresses caution about the performance of risky assets and the broader macro outlook in the next 12 months.
• Interest rate shocks and geopolitical developments are identified as challenges.
• Market declines and volatility are anticipated in 2024 before potential easing of monetary conditions.

Equity Market Outlook:

• S&P 500 faced challenges in 2022 but recovered in 2023.
• Earnings growth outlook for 2024 is modest, with corporate margins facing headwinds.
• P. Morgan estimates S&P 500 earnings growth of 2–3% in 2024, with a downside bias.

Global Economic Forecast:

• Global growth exceeded expectations in 2023, supported by fiscal and commodity price shocks.
• P. Morgan economists expect the global economy to avoid a near-term recession, but an end to the global expansion is likely by mid-2025.
• Soft-landing optimism is rising, but concerns about a recession persist.

Outlook and Risks:

• Growth poised to slow as positive shocks fade, with rising yields and tighter credit.
• Limited inflation moderation due to supply damage and inflation psychology.
• Business sector vulnerability, potential recession risks: 25% by H1 2024, 45% by H2 2024, and 60% by H1 2025.
• Soft landing dependent on an inflation decline allowing mid-year monetary easing.

Inflation Expectations:

• Inflation in 2024 is anticipated to continue its downtrend due to fading energy pressure and weaker labor markets.
• Potential stickiness on the way down may pressure central banks to maintain higher interest rates for a longer duration.

Monetary Policy and Interest Rates:

• Expectation of a steady and gradual easing cycle toward a neutral level of rates across developed markets (DMs) if the macro baseline of a soft landing unfolds.
• Differentiation across jurisdictions in terms of the start date, pace, and terminal of rate cuts.
• In the U.S., the Federal Open Market Committee (FOMC) is expected to start cutting rates in Q3 2024 at a pace of 25 basis points per meeting.

Commodity Markets Outlook:

• Brent oil prices expected to remain largely flat in 2024 and decrease by 10% in 2025.
• Solid supply-demand fundamentals, with oil demand rising by 1.6 million barrels per day in 2024.
• OPEC+ likely to continue production constraints through Q1 2024.

Metals and Agriculture Market Outlook:

• Gold and silver forecasted to outshine other metals, reaching new nominal highs in mid-2024.
• Bullish outlook for agriculture markets, with sugar prices projected to average $0.30/lb and wheat prices at $6.33 per bushel in 2024.

Foreign Exchange (FX) Outlook:

• FX market participants’ views on the macro outlook vary widely.
• The U.S. dollar expected to remain at elevated levels with the potential for new highs if rate cuts materialize.
• Euro and British pound face challenges, with the euro/dollar pair forecasted to hover between parity and 1.05, and sterling/dollar sinking to 1.18 in Q1 2024 before rising to 1.26 by December.

Emerging Markets (EM) Outlook:

• EM outlook dominated by U.S. growth and monetary policy cycles.
• Key themes in EM for 2024 include the U.S. economy, resolving cyclical uncertainty, and monitoring global macro trends.