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Investments snapshot

The first quarter of 2024 was characterized by a repricing of interest rate expectations, especially for developed market (DM) central banks. The timing of potential rate cuts by the US Federal Reserve, ECB and BOE were pushed back to the second half of 2024 as growth and inflation data surprised to the upside. Despite rising bond yields, equity markets continued to rally driven by AI enthusiasm, strong corporate earnings and resilient earnings activity. Japanese equities outperformed its peers on the back of solid earnings growth and a weaker yen. Emerging Market equities were held back by weakness in China, although Chinese equities did rally in the second half of the quarter.

Estimates of US GDP growth indicated the US economy accelerated in Q4 23. US GDP in Q4 23 grew at an annualized rate of 3.4%. Higher consumer spending, exports and business investment supported the economy. Headline US CPI fell over Q1 2024 decreasing to 3.2% in February from 3.4% at the end of December. Core US inflation has been declining in recent months. The Federal Reserve at its March meeting decided to maintain policy rates at 5.50%. The Fed retained the median projection for interest rates at end-2024, expecting 0.75 percentage points of cuts before the end of the year, likely translating into three 0.25 percentage point cuts.

The Chinese economy is estimated to grow at 5.3% in Q4 2023 up from 4.9% in Q3 2023. A slight recovery in economic growth is partially influenced partly by base effects but also the recent Lunar New Year. The economy continues to be challenged by a property crisis, deteriorating consumer and business confidence, and increased local government debts. Nonetheless, the recent data indicates some improvements as business surveys are beginning to point towards a broadening out of stronger economic activity. The Peoples Bank of China (PBoC) cut the five-year loan prime rate (LPR) to 3.95% from 4.2%, while the one-year LPR was kept unchanged at 3.45%.

Japan’s GDP expanded at 0.4% y-o-y in Q4 2023. Japan avoided a technical recession during the quarter, primarily due to companies' stronger-than-expected spending on plants and equipment.

Quarter on quarter GDP growth remained flat in the eurozone. Germany posted a 0.3% quarter-on-quarter contraction, whilst narrowly avoiding a technical recession, the economy is stagnating, driven by a stalling manufacturing sector. The French economy was steady in Q4, while Spain expanded by 0.6%. Headline inflation in the eurozone has declined to 2.4% in March from 2.9% in December. The European Central Bank maintained the interest rate on the marginal lending facility at 4.75%.

UK GDP growth is estimated to have declined 0.3% in the fourth quarter of 2023. Headline inflation in the UK fell to 3.4% in February from 4% in December. Base effects played a significant part in inflation declining, however, food and energy costs are also declining sharply. The Bank of England maintained interest rates at 5.25%.