Former U.S. President and Republican presidential candidate Donald Trump attends a 2024 presidential election campaign event in Summerville, South Carolina, U.S. September 25, 2023. Photo: Reuters

Starting with domestic politics, there are a large number of elections next year. The US and UK elections will attract most interest in a G10 context but polls in the likes of Russia and India bear watching as well. If Mr.Donald Trump will win the November election in the US irrespective of whether Biden upholds his promise to stand, or not. Do we think this is going to have a significant financial market bearing?

In the Standard Bank’s view, much depends on the policies that Mr. Trump decides to go with; the most contentious seemingly being a 10% tariff on all imports. In the UK, the Standard Bank’s assumption is that the election will be in the autumn and that Labour will win a majority. In the past such a prospect might have unnerved investors somewhat, but we do not see this being the case in 2024. Geopolitics will feature high on the list of potential financial market influences next year as well.

“We do not assume that Putin’s almost-certain re-election as Russian president will likely to see the war in Ukraine roll on. We assume that Western funding for Ukraine will continue to be just enough to maintain the military stalemate but, as a potential surprise in 2024, a Russian victory should not be ruled out”, said the Standard Bank.

Against a pretty febrile domestic and geopolitical backdrop economic performance is likely to be very tame. US “exceptionalism” will remain but in the context of slower growth. The National Bureau of Economic Research (NBER) would not label the US as being in a recession in 2024. But winter recessions are expected in Europe, especially in the likes of the UK and Germany.

For many countries, the outlook seems to be that growth will largely flatline, at least through the first half of 2024, allowing supply and demand to come into better balance, both in terms of the overall economy and, importantly, the labour market. Inflation should continue to fall incrementally and there could be a modest rotation back to more goods price inflation, and less service sector inflation as global supply chain pressures rise moderately. But we doubt that this will be sufficient to stall, or reverse, the trend of falling inflation even if the really big falls in price pressure are now behind us.

Weak growth and lower inflation should prompt the start of easing cycles from central banks. The Standard Bank’s sense is that rate-cutting cycles within the G10 countries will start a little later than generally anticipated, but be deeper than priced into the market right now. The key will be the Fed; here it does not see rate cuts starting until Q3 but do anticipate 150-bps of cuts in all through 2024. Falling policy rates should allow government bond markets to strengthen, even if not at the pace we have seen in recent months.

While potential barriers to declines in yields such as quantitative tightening by central banks and concerns over government deficits might remain, the Standard Bank does not believe that they will be sufficient to derail the rally and, broadly speaking we expect returns from government bonds in 2024 to be ahead of stocks, although it expects global stocks to produce a mid-to-high single digit return through next year.

In the FX market, US ‘exceptionalism’ may remain to support the US dollar but it should diminish and be more than counterbalanced by improving risk sentiment as central banks cut policy rates. The Standard Bank envisages modest weakness for the US dollar in 2024 against other G10 currencies with the euro, for instance seen ending the year at 1.20. Once again the yen is likely to be the biggest mover in 2024 but while this was in terms of depreciation last year it should come from strength this year as the BoJ tightens policy. It expects the yen to rise against all currencies, ending the year around 125 against the US dollar.