Highlights:

• 2023 ended with global investors celebrating the end of the monetary tightening cycle, while anticipating quick disinflation, aggressive rate cuts and solid profit growth.
• We fear that the US economy may slow significantly down in 1H24. Central banks may also fear that the sharp easing of financial conditions will make the ‘last inflation mile’ more difficult, hence will not rush into Q1 rate cuts.
• We see a downside in bond yields, but more in the US than the EA. Instead, we prefer EUR Credit to USD. We also continue to favour Investment Grade (IG) Credit early in the year. We expect a positive year for High Yield (HY) Credit and Equities, but soft performance early on. The USD should weaken overall, if not quickly, and the Yen recover.
• 2024 will see then great volatility convergence, with rates volatility set to fall, whilst Equity, Credit and FX volatility should rise initially. The new year offers many wild cards, from the risk of deeper China deflation to the BoJ policy turn and an exceptionally heavy electoral agenda.

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