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Today’s newsletter brings you a comprehensive overview of the latest developments shaping global markets and economies. In the aftermath of the Christmas holiday, US equity futures edged higher, and the dollar remained stable, setting the stage for potential early and substantial interest rate cuts in the coming year. Meanwhile, the euro, having strengthened 3% in 2023, is poised for gains in 2024, supported by unexpected tightening measures by the European Central Bank. As we delve into the economic outlook for 2024, brace for headwinds as global growth faces challenges, leading to a projected 2.7% expansion, down from 3.1% in 2023. The newsletter explores factors contributing to a potential shallow recession in advanced economies, including the US, and a slowdown in emerging markets. Additionally, we delve into the anticipated easing of global inflation, providing insights into how these macroeconomic trends may impact investment strategies and financial markets.

– Matheus Zani & Daniel Porto

R&D Featured Article

Raise against the machine: How AI will augment investor instincts

The investment landscape is undergoing a transformative shift with the integration of AI tools, set to inform over three-quarters of venture capital investments by 2025, according to Gartner. These tools, used alongside human analysts, offer the potential to significantly reduce risk at every stage of the investment process. AI facilitates the extraction of meaningful insights from vast amounts of financial data, enhances decision-making accuracy, and streamlines due diligence processes. It also aids in personal risk assessment by complementing human judgment with objective benchmarks and psychometric testing. Furthermore, AI expands investment horizons by managing foreign exchange risk and providing deeper insights into global opportunities. The democratization of AI adoption across the industry is evident, with a growing desire among venture capital firms to increase their data-driven initiatives. As AI continues to shape the investment landscape, combining these tools with well-defined theses and effective management may determine the true outliers in the field, emphasizing the importance of a clear-eyed, AI-assisted view of risk for transformative impact on balance sheets.

2. Euro Poised for Gains in 2024 After a Modest 2023

The euro is set to conclude a relatively uneventful year, having strengthened about 3% against the US dollar in 2023, fueled by the European Central Bank's unexpected tightening measures. While interest-rate traders anticipate rate cuts from both the ECB and the Federal Reserve in 2024, the euro's fortunes may be buoyed by less restrictive policy rates in the eurozone compared to the US. Traders are currently pricing in a 60% chance of an ECB rate cut in March, but President Christine Lagarde's cautious stance suggests a potential re-pricing, offering the euro a boost to around 1.11 against the dollar in the first quarter.

3. 2024 Economic Outlook: Global Growth Faces Headwinds, Inflation Expected to Ease

The global economy is projected to experience a slowdown in growth, with a forecasted 2.7% expansion in 2024, down from 3.1% in 2023. Advanced economies, including the US, UK, and the euro area, anticipate a shallow recession attributed to the lagged impact of Federal Reserve rate hikes. The collective growth for advanced economies is expected to be 0.9%, a decline from 1.5% in 2023. Emerging markets, facing challenges like China's real estate correction, are also poised for a slowdown, with a projected growth rate of 4.1% in 2024, down from 4.4% in 2023.

Additionally, global inflation is forecasted to decrease, heading towards 5.4% at the end of 2024 from 6.2% at the end of 2023. Advanced economies, including the US, euro area, and UK, are expected to see a return to target levels, with average price gains of 2.6% in 2024, down from 4.8% in 2023. Emerging markets exhibit a more varied inflation landscape, with China battling deflation and Argentina facing significant price gains. The overall global inflationary picture suggests a post-pandemic normalization, with inflation receding without substantial negative impacts on unemployment or price expectations.

Charted Territory

What to look out for today

USD - Chicago Fed National Activity (Nov)

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