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    A good investment strategy goes a long way

    See how our investment strategy responds to economic and financial events.

    A good investment strategy goes a long way

    See how our investment strategy responds to economic and financial events.

    The long-awaited pivot is a reality. Now what?

    In recent weeks, both the European Central Bank and the U.S. Federal Reserve cut their policy rates. With interest rates finally falling again, are we entering a different world? How is the economy reacting? And which asset classes, regions or sectors could benefit? Mark Van Assche, Private Banking and Wealth Office account manager, talks about it with Romain Dédericks, fund manager at KBC Asset Management.

    01/10/2024

     

     

    What’s happening in the world? And what are the implications for the financial markets? 

    Update October 24th, 2024

    Economy

    • The manufacturing industry continues to perform quite weak overall. Recent data from Europe (including France and Germany) and US confirmed this once again in September. 
    • The service sector is also showing signs of weakening. The boost that France temporarily enjoyed from the Olympic Games is behind us. 
    • The US labour market confirmed its robustness: the latest figures surprised positively.

    Comodity prices - inflation

    • In both the US and Europe, the inflation trend is still on the downside.
    • Persistant underlying inflation (especially in the services sector) and recent volatile oil prices mean that the disinflation process is proceeding somewhat more slowly than previously thought. 

     

    Fiscal and monetary policy

    • The exceptional stimulus programmes are being scaled back, but there is no sign of savings drift.
    •  Programmes such as EU Next Generation and the Inflation Reduction Act in the US are still substantial and continue to offer considerable support. 
    • Also China announces regularly new policy measures to support their economy.
    • After keeping rates on hold for 14 months, the Fed finally reversed course and delivered a 50bp cut in September. 
    • This rate cut indicates that the Fed is confident that inflation risk has abated and the focus is now on supporting the labour market. 
    • Remember that the ECB has also cut its policy rate 3 times by .25bp each time.

    Bond markets

    • The peak of interest rates seems to have been reached. 
    • The fluctuating chances of both parties in the US presidential elections are also leaving their mark. 
    • Despite clearly different emphases, the budgetary impact of the two programmes is similar. However, the Trump-camp's tariffs and migration policies may push inflation higher, which could keep interest rates under upward pressure.

    Equity markets

    •  Q3 corporate results are starting to trickle in.
    • Expected earnings growth was revised downwards in recent weeks (+4.7% in the US, +2.6% in Europe)
    • The bulk of expected earnings are likely to come again from large US technology companies, although that growth will be lower than in past quarters.
    • US banks beat expectations, while mixed signals are coming from the semiconductor industry.

    Risks

    • However, the conflict in the Middle East and Ukraine could continue to cause nervousness. 
    • The U.S. elections may also cause volatility later this year.
    • Moreover, the sharply higher Yen caused forced sales in the settlement of carry trades, though this risk seems to have abated.

    Recent economic data confirm the scenario of a soft landing. With US elections approaching, and a volatile geopolitical situation, we prefer a balanced portfolio.

    Siegfried top, Senior Investment Strategist KBC Asset Management

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    This web page is published by KBC Asset Management NV (KBC AM). The information and figures it contains are a snapshot, may be changed without notice and offer no guarantee for the future. The information provided should not be regarded as investment advice or as an investment recommendation. No part of this page may be reproduced without the prior express written consent of KBC AM. The information on it is governed by the laws of Belgium and is subject to the exclusive jurisdiction of its courts. Publisher: KBC Group NV, 2 Havenlaan, 1080 Brussels, Belgium. VAT BE 0403.227.515, RLP Brussels. www.kbc.be.