Macro & Markets Outlook 2024-25
Central banks' pivot set to support market sentiment
- Global growth will likely slow further next year as past monetary tightening bites and China's economy struggles. With inflation in the US and the eurozone heading towards 2% by end-2024 and below target in 2025, the Fed and the ECB will likely be busy cutting rates from mid-2024. Growth will probably pick up somewhat in 2025.
- We expect curves to bull-steepen and we target 4.15% for the 10Y UST yield and 2.40% for the 10Y Bund yield (10Y swap rate at 2.80%) by end-2024, with a further decline in 2025. We are constructive on BTPs.
- A mildly weaker USD will likely push EUR-USD to 1.13 by end-2024 and to 1.15 by end-2025. USD-JPY could slip towards 140 once the BoJ starts policy normalization. A GBP fall and a USD-CNY drop below 7.00 are likely to be two stories for 2025. In CEE, the PLN strength is likely to fade, the CZK may become more stable in 2024 and the HUF is set to underperform. Monetary tightening at home is likely to curb the fall of the TRY and the RUB.
- Eurozone equity prices have the potential to rise by about 10% in 2024. The potential is even greater in the US as technology stocks have a higher sensitivity to interest rates.
- Corporate credit will likely deliver positive total returns in 2024. We expect European banks' credit to outperform non-financials due to better profitability outlook and lower supply pressure. From a risk-reward perspective, we favor IG over HY non-financial bonds as the latter face higher refinancing needs.
- We expect greeniums to remain positive in 2024, although lower on average than in 2023, due to modestly tighter investment-grade spreads and more selective investor behavior.
Source: UniCredit Research - Macro & Markets Outlook, 23 November 2023, Executive summary