Back to listingProyeksi Global
June 2024
A crucial month
US – June is an important month
June is likely to be an important month for investors. The Federal Reserve meeting on 11-12 June and the US May consumer price index (CPI) report on 12 June aside, the first debate between President Joe Biden and ex-president Donald Trump will be held on 27 June. If the latter continues to lead in the polls, then financial markets may start to price in the likely effects of a second Trump term, including higher inflation, larger budget deficits, increased tariffs, and a sudden reversal of large-scale immigration.
This year we expect that US inflation will fall further back towards the Fed’s 2% target to enable the central bank to start cutting its fed funds rate from 5.25-5.50% in 25bps moves each quarter, most likely from September onwards. This would allow US Treasury (UST) yields to fall, benefiting the broader fixed income asset class while also leading to moderate US Dollar weakness.
We continue to see the Fed reducing interest rates twice this year. But with the window for easing becoming shorter and concerns that a second Trump term would lead to higher yields, we think investors should turn Neutral on USTs rather than stay Overweight. We still, however, favour Developed Markets Investment Grade bonds as central banks, like the European Central Bank (ECB), start their own easing cycles.
China – Mixed data spurs new easing measures
China’s economy remains on track to meet our forecast of solid 5% growth this year. But its recovery from the pandemic is still unbalanced.
April’s data showed China’s supply side is strengthening with industrial production up 6.7% year-on-year (YoY). But China’s demand side is still lacklustre. Retail sales growth slowed to just 2.3% YoY as consumers stay cautious and fixed asset investment also decelerated to 4.2% YoY in April.
Manufacturing investment remained strong at 9.7% YoY. But property investment continued to contract deeply by 9.8% YoY in April.
Thus, overall demand in China remains subdued as consumers stay cautious, indebted local governments reluctant to borrow more aggressively, and fragile property markets hurting sentiment across the economy.
The mixed data, however, is spurring new easing. In May, the Ministry of Finance began issuing CNY1 trillion of ultra-long-term bonds for strategic investments, and officials unveiled new measures to stabilise China’s housing markets, including lowering minimum mortgage downpayments and a new scheme to help state-owned enterprises (SOE) buy unsold homes.
We think further monetary, fiscal and property easing measures should keep a floor under China’s growth and thus help financial markets continue recovering this year.
Europe – UK election to delay BOE rate cuts
Europe’s economies are picking up after suffering recession in 2023. We forecast Eurozone GDP growth to accelerate from 0.5% last year to 0.7% this year and 1.5% in 2025. Similarly, we project UK’s GDP growth to rebound from just 0.1% in 2023 to 0.8% in 2024 and 1.5% next year.
At the same time, inflation is falling towards the ECB’s and the Bank of England’s (BoE’s) 2% targets. We expect the ECB will respond by cutting interest rates by 25 basis points, three times in total in 2024.
In contrast, the BoE will likely wait until August before reducing its Bank Rate from 5.25%, after the UK government unexpectedly set 4 July for the next general election date.
Overall, the macro-outlook is likely to remain supportive for both the Eurozone and UK financial markets. Stronger growth, falling inflation and central bank rate cuts are set to keep supporting investor sentiment in Europe this year.
Japan – Weak Japanese Yen set to spur next BOJ rate hike
The Bank of Japan (BoJ) appears likely to follow its March interest rate increase with another hike as early as July, given inflation is settling around its 2% target and Japanese Yen (JPY) weakness is raising import costs for firms and consumers.
In March, the BoJ ended its negative interest rates and set its overnight call rate at 0.00-0.10%,after inflation hit four-decade highs above 4% last year. But officials have stayed dovish and noted future interest rate rises would be gradual to allow inflation to become entrenched again after Japan’s three lost decades of deflation. The BoJ’s dovish stance has continued to support Japan’s markets this year. But another rate hike to around 0.25% seems likely now. Tighter BoJ policy and a firmer JPY may test equities in the next few months.
Source: Bank of Singapore
Source: Bank of Singapore
The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The information in this document is not intended to constitute research analysis or recommendation and should not be treated as such.
Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.
The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. Investments are subject to investment risks, including the possible loss of the principal amount invested.
The Bank, its related companies, their respective directors and/or employees (collectively “Related Persons”) may or might have in the future interests in the investment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, investment banking and other financial services to such issuers. The Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products.
No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.
The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent. The contents are a summary of the investment ideas and recommendations set out in Bank of Singapore and OCBC Bank reports. Please refer to the respective research report for the interest that the entity might have in the investment products and/or issuers of the securities.
Investments are subject to investment risks, including the possible loss of the principal amount invested. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures, predictions or projections are not necessarily indicative of future or likely performance.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
This document may be translated into the Chinese language. If there is any difference between the English and Chinese versions, the English version will apply.
Cross-Border Marketing Disclaimers
OCBC Bank's cross border marketing disclaimers relevant for your country of residence.
Any opinions or views of third parties expressed in this document are those of the third parties identified, and do not represent views of Oversea-Chinese Banking Corporation Limited (“OCBC Bank”, “us”, “we” or “our”).
