Hi there,

In today's newsletter, we delve into the dynamic landscape of German stocks, which have recently experienced a short-term surge amid investor preferences shifting beyond US large caps. The DAX reached a record high, propelled by optimism in the economy and eased monetary policy. However, the rosy picture may face challenges in 2024, especially considering potential global market downturns and Germany's exposure to China. Next, the European Central Bank (ECB) takes the spotlight as it emerges as a global leader in monetary policy easing. Investors are anticipating a series of interest-rate cuts in 2024, with the ECB leading the way in an aggressive easing cycle. Despite caution from market experts about overoptimistic expectations, this shift in central bank dynamics sets the stage for potential global impacts. Lastly, we explore the growth outlook for emerging markets in 2024, characterized by internal factors countering external challenges. Monetary easing and increased public spending during elections are expected to bolster growth, despite weak global prospects and geopolitical risks. The projected 3.7% growth rate aligns with 2023 figures and pre-pandemic averages, with rate cuts, elections, global slowdowns, and geopolitical tensions emerging as key factors shaping the trajectory of emerging markets in the coming year.

– Matheus Zani & Daniel Porto

R&D Featured Article

FX Options 101: How to buy and sell FX options safely

Explore the world of FX options as a sophisticated tool for hedging currency risk, offering flexibility beyond forwards. Learn about their advantages, such as limiting potential losses to upfront premiums, and discover strategies like collars and participating forwards. Deaglo's technology-driven approach, utilizing Monte Carlo simulations and AI/ML models, empowers you to make informed decisions, navigate complex structures, and tailor options to align with your investment goals and risk tolerance. Uncover the potential risks and benefits of options, and delve into Deaglo's innovative platform that adapts to different market regimes, providing a comprehensive view of risk profiles in various environments. Discover the transformative impact of AI and ML on financial simulations, enabling more realistic market insights and effective decision-making.

2. ECB Emerges as Global Leader in Monetary Policy Easing

Investors are increasingly anticipating that Europe will take the lead among major central banks in implementing interest-rate cuts, driven by the notable slowdown in inflation. European Central Bank (ECB) markets are now fully pricing in six quarter-point rate cuts in 2024, projecting a total decrease of 150 basis points to 2.5%. The likelihood of the easing cycle commencing in the first quarter of next year has surged to almost 90%, a scenario that gained momentum following comments by ECB member Isabel Schnabel, historically a hawk, who described the inflation slowdown as "encouraging" and deemed further rate hikes as "rather unlikely." If these predictions hold true, the ECB would be the first major central bank to cut rates in 2024, leading the way with the most aggressive easing cycle. However, some market experts are cautioning that global expectations for central bank cuts may be becoming too optimistic. While the Federal Reserve is expected to make its first move in May, lowering rates by 125 basis points, the Bank of England and other central banks are also reconsidering their rate hike trajectories. Despite the ECB's cautious approach, strategists are warning about potential disappointment in these expectations, with concerns about central banks losing control of messaging and markets overpricing rate cuts in the coming year.

3. Emerging Markets Growth Outlook for 2024 Remains Robust

Global emerging markets are anticipated to experience stabilized growth in 2024, with internal factors offsetting external challenges. Monetary easing across various countries is expected to act as a positive catalyst, complemented by increased public spending during elections. Despite the optimistic outlook for emerging markets, weak global growth prospects and skewed geopolitical risks pose concerns. The projected growth rate for emerging markets, excluding China, is estimated at 3.7%, aligning with 2023 figures and pre-pandemic averages. Four key factors are identified as driving forces in 2024: rate cuts, elections, global slowdowns, and wars. Lower interest rates resulting from 2023 rate cuts are likely to persist, with additional rate cuts expected in various countries throughout 2024. Notable examples include Brazil's visible interest rate reductions and Turkey's exceptional rate hikes. A global economic slowdown, particularly in major economies like the US and China, is foreseen, impacting developing countries with strong links to these economic giants. Elections in various countries, including India, Indonesia, Mexico, and Turkey, may contribute to temporary economic boosts as governments increase spending to woo voters. Additionally, wars, while primarily human tragedies, can disrupt economic activities, hinder international trade, and introduce uncertainties. The conflict in Ukraine and the Israel-Hamas war are highlighted as current examples. The overall outlook for emerging markets is influenced by a balance of tailwinds from fiscal and monetary policies, headwinds from slower global growth, and downside risks associated with wars.

Charted Territory

What to look out for today

EUR Retail Sales
GBP FPC Meeting Minutes & Statement
USD ADP Employment Change
USD Non-farm productivity
CAD BoC Interest Rate Decision
CAD BoC Monetary Policy Statement
CAD Ivey Purchasing Managers Index

BONUS: If you’d like to receive our daily round-up of the three must-know global headlines affecting international currencies, sign up for Raise and Deploy: The International Investing Newsletter!