Monthly House Views - Central bank to step up the pace - September 2024

ÉDITO
A Volatile summer had markets fear a sharper slowdown. 
The world's major economies showed signs of faltering this summer. In the United States, leading indicators came in worse than expected and the jobs market eased slightly. In Europe, a struggling German economy and political problems in several countries, including France, raised fears of a sharper slowdown. In China, domestic demand remains slack. Markets reacted to these signals with greater volatility. Equity markets corrected and interest rates fell, particularly in the United States.
 
We maintain our scenario of a soft landing for developed economies, as central banks step up the pace of monetary policy loosening and inflation comes down. Over the last few months, we have seen final proof that inflation is being squeezed out, which should give central banks space to ease policy more quickly. Lower inflation and looser rates should help boost their economies. As a result, the US is likely to experience only a gradual slowdown, still cushioned by solid balance sheets of both households and companies.  In Europe, growth is likely to remain modest but positive.
 
Softer view on US equities. 
The outlook of continuing growth and falling interest rates lead us to maintain our exposure to equity markets in developed economies. But with the slowdown now clearly underway, we have opted to have moved to a more neutral view on the year's biggest winners: the US stock market and growth segments. We remain Overweight European markets which still harbour good value and a hefty proportion of value stocks. At the same time, we remain positive on bonds as a way to play coming rate cuts and hedge against any precipitate correction in stocks.
 

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