Standard Chartered Bank anticipates that central banks worldwide will likely adopt more accommodative monetary policies in 2024 to address prevailing economic challenges.
Mr. Steve Brice, the Global Chief Investment Officer at Standard Chartered Bank’s Wealth Management unit, made this projection during the presentation of the bank’s Global Market Outlook 2024 themed ‘Sailing with the Wind’ in Lagos.
Brice emphasized that central banks are likely to consider easing policies due to lower inflation leading to higher real interest rates, thereby tightening monetary conditions.
He highlighted that the United States has already indicated a willingness to ease policy based on its current projections, citing signs of a deceleration in the US economy. The US Federal Reserve’s readiness to ease policy earlier than expected is seen as a positive move for a potential economic soft landing.
In terms of inflation, Brice pointed out that 2023 witnessed a deceleration in goods prices, and 2024 is expected to see a similar trend in the service sector, with shelter inflation potentially moving into deflationary territory later in the year.
Brice’s analysis also revealed that during periods of high inflation, bonds and equities tend to be positively correlated. In a high inflation environment, central banks are more concerned about growth, leading to fears of restrictive monetary policies and slower economic growth, adversely affecting both stocks and bonds. Conversely, falling inflation reduces pressure on central banks to raise interest rates, making the environment favorable for equities and bonds.
Regarding bond yields, Brice predicted that slower economic growth, lower inflation, and potential interest rate cuts are likely to result in lower bond yields.
He recommended a preference for Developed Market bonds with high credit quality, considering them more attractive on a risk-return basis.
In terms of global equities, Brice anticipates a rally into early 2024, supported by reduced concerns about a hard landing and expectations of eased monetary policies. The expected recovery in earnings in 2024, after stagnation in the previous year, should further bolster the equity rally.
While expressing optimism for the start of 2024, Brice advised investors not to concentrate all their investments in one area. He highlighted the importance of diversification, particularly in the face of potential downside growth surprises.
Brice suggested monitoring signs of pervasive greed or indications of the US economy heading towards a recession to adjust risk exposures accordingly throughout the year.
