In today’s briefing:
- Energy Cable #51: Tensions Increasing Fast in the Red Sea
- What the Politics of 2024 Tell Us About 2025
- A Bull Market With Election Year Characteristics
- US: Increase Weight in Bonds Vs Equities in the Early Part of 2024
- Comment on Exchange Rate EUR/USD – December 15, 2023
- Quarterly Macro Note – EUROZONE ECONOMY – 21 Dec 2023
Energy Cable #51: Tensions Increasing Fast in the Red Sea
- Happy New Year everybody and welcome to this year’s first edition of the Energy Cable.
- Crude oil prices started rallying into and over the Christmas holiday period with focus on the Houthis’ attacks on vessels in the Red Sea which prompted us to have a look at the numbers.
- The developments over the weekend have increased tensions, and we are eagerly awaiting the initial price action of the year to see how nervous the market is.
What the Politics of 2024 Tell Us About 2025
- What does the political and economic landscape of 2024 mean for investors in 2025 under a Biden oe a Trump administration?
- A Biden White House is more predictable using conventional economic analysis. Much depends on whether the Fed can achieve a soft landing of the economy.
- The effects of a Trump White House will be more difficult to predict. The only certain investment bet under a Trump administration may be to buy volatility.
A Bull Market With Election Year Characteristics
- Long-Term models are signaling the revival of a long-term equity bull.
- But the market may be vulnerable to some choppiness in the next few months.
- The intermediate-term outlook for stocks continues to be bullish and we expect a positive year for the S&P 500 in 2024.
US: Increase Weight in Bonds Vs Equities in the Early Part of 2024
- We expect the Fed Funds rate to decline a minimum of 50bp this year, starting with a 25bp cut in Jun’24. Consequently, bonds are likely to generate solidly positive returns.
- Despite M2 contracting YoY for 12 months, core inflation still remains too deeply entrenched, and will consequently not allow any earlier easing. But a slower economy will help rein-in inflation.
- The S&P500’s CAPE ratio is 32.27x, nearly double its mean of 17.07x, so equities are likely to struggle in Q1CY24. We recommend being Overweight Bonds and Underweight Equities this quarter.
Comment on Exchange Rate EUR/USD – December 15, 2023
- During the period under consideration, i.e. November 15th to December 15th, 2023, the EUR/USD exchange rate fluctuated between 1,084 and 1,095 in the initial period until November 27th, 2023.
- After reaching 1,099 on November 28th, the exchange rate followed an immediate downtrend until the 11th of December (except for one session), although it remained higher than the levels seen at the beginning of November.
- Conversely on December 12th, the pair recorded an ascent, finally settling at 1.0894.
Quarterly Macro Note – EUROZONE ECONOMY – 21 Dec 2023
- The economic outlook for the Euro Area in 2024 anticipates a soft landing, as declining prices and rising real wages are expected to boost balances and confidence of households and businesses.
- The main factors behind this relief are the reduction in commodity prices as well as the normalization of supply constraints.
- However, the enduring impacts of geopolitical tensions, weak external demand, steep interest rate hikes, and strong energy shocks have contributed to a weakening economy with manufacturing and construction sectors affected significantly and experiencing declining growth rates.
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