⚡ Will Slowing QT and Steady Rates Stabilize Global Markets in 2024?
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MONETARY POLICY SHIFTS
Fed's Dovish Stance: The Fed acknowledges no significant progress on inflation reduction this year, hinting at a cautious approach with potential rate cuts favored over hikes.
Global Rate Disparities: The European Central Bank (ECB) is expected to cut rates this summer from 4% to 3.25%, contrasting with the Fed’s cautious hold due to sustained inflation above 2%.
Quantitative Tightening (QT) Adjustments: The Fed has slowed its balance sheet runoff, reducing monthly QT from $60 billion to $25 billion, to address market liquidity.
ECONOMIC INDICATORS AND MARKET REACTIONS
Manufacturing and Employment: U.S. manufacturing index slipped into contraction at 48.6, signaling weak industrial activity; job additions were lower than expected at 175,000 last month, pushing unemployment slightly higher to 3.9%.
Market Volatility and Asset Prices: Despite robust inflation, April saw the U.S. dollar strengthen for the fourth consecutive month, reflecting persistent economic resilience and market adjustments.
Fixed Income Dynamics: Fixed income spreads returned to historical tightness after initially widening due to a surprise in the U.S. CPI, which rose unexpectedly by 0.4% month-over-month.
LOOKING FORWARD
Inflation and Growth Projections: U.S. inflation remains stubbornly high, with core inflation projected to settle around 2.5% by mid-2024, challenging the Fed's target.
Investment Strategy Adjustments: Investors are advised to maintain cautious positioning in rate-sensitive assets, anticipating a slow transition to lower rates, potentially reaching 4.5-4.75% by end-2024.
Sustainability in Focus: Goldman Sachs now oversees $327.6 billion in sustainability-related assets, with a significant increase in client allocations to green bonds expected following a global market growth to $2.6 trillion.
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.