CoreMacro
BCA’s flagship global macro and investment strategy platform, helping investors anticipate regime shifts, connect signals across regions and asset classes, and navigate the world’s most difficult macro questions.
While Mexican markets will continue selling off in absolute terms, their recent underperformance versus their EM peers is a temporary setback in a cyclical and structural bull market. Domestic politics are evolving from stable to bullish: the new president will rule in a technocratic manner, respecting private sector interests. The Mexican economy will achieve a soft landing even if the US enters a recession.
China’s economic growth will stagnate, at best, rather than revive. Lower valuations of Chinese equities are justified, and share prices have more downside. The RMB will continue to depreciate versus the US dollar.
Europe’s weak patch is not about the ECB’s policy tightening, at least not yet. 2024 is another story, and the ECB’s policy will prompt a Eurozone’s recession around the summer.
The biggest banks report that consumer credit card delinquencies still have yet to get back to pre-COVID levels and other credit performance indicators, leading and lagging, remain solid. There is still a great deal of cash sloshing around the banking system, though consumption has clearly slowed. We reiterate our view that a recession is coming, but not before the year is out.
There is a high probability that the global economy will tip into recession in the second half of 2024. A long yen position is an excellent hedge against that risk.
The Hamas attack against Israel, timed almost 50 years to the day after a similar surprise attack on Yom Kippur of 1973, has evoked parallels with the 1970s. Parallels not only with Middle Eastern geopolitics then and now, but also with inflation, economics, and financial markets. In this report, we explain what went wrong in the 1970s and whether the mistakes will be repeated. Plus: the sharp sell-offs in some Latin American currencies are reaching a potential turning-point.
Yields remain the force dominating the evolution of markets. A peak in yields would help European assets rebound, but the war in the Middle East could push higher energy prices, with negative consequences for Europe.
Numerous breakdowns are occurring in global equities outside the US large cap. All these market moves point to a global economy that cannot handle high borrowing costs. Unless EM share prices find a bottom in absolute and relative terms before year-end, they will have experienced a structural breakdown.
US monetary policy is restrictive, as evidenced by a falling jobs-workers gap. The reason that unemployment has not risen is because labor demand still exceeds supply. That will change in the second half of 2024 when the US economy succumbs to recession. Investors should increasingly favor bonds over stocks.
