Anchor Insights January 2024

• Another month of rises in the developed stock markets, ending a year with returns close to 20% and more than 50% for the Nasdaq.
• Rally in fixed income as a rate cut in 2024 is highly likely.
• Gold hit new highs on expectations of rate cuts. Oil and gas continued to decline.
• The euro regained ground against the dollar on the Fed's clearer message.

• Keep an eye on the 2023 earnings releases and negative guidance surprises.
• The escalation of tension in the Middle East may bring inflationary spikes.
• The USD could suffer from the Treasury's financing needs and the spending ceiling.
• China's lack of momentum continues to weigh on commodities.

Long-Term Opportunities:

• Renewable Energies: The need to decarbonise drives huge plans to invest in renewable energies.
  
• Real Estate: In the face of a stabilisation of interest rates and a readjustment of valuations.
  
• Health & Biotechnology: An M&A spree may happen as big pharma goes out shopping.

• Credit spreads at medium levels, on both European and US bonds.
• Stabilization of yields on government bonds, both European and American.
• We expect a repricing of high yield dollar bonds as default rates increase. Preference for BB.
  

• The euro and dollar are in the range of 1.11-1.05. Greater tendency to weakness in the USD by phase of the monetary cycle.
• Correction risks in real estate assets and private equity due to rising interest rates and falling multiples. 
• Stabilization of the price of a barrel due to supply cuts by OPEC+.

• Economic slowdown, recession due to tightening of monetary policy.
• Extension of the Israeli-Palestinian war to the Middle East, oil at 200 USD.
• Conflict in Ukraine, escalation of NATO-Russia tension, continued sanctions.
• The persistence of high inflation leads to social tensions and populism.
• Financial fragmentation of the Euro public debt market.
• Reduced liquidity in financial markets, volatility.
• Increase in cybercrime, disruptions to essential infrastructures.
• Instability of the banking sector, reduction of access to financing.

• The economic slowdown is beginning to be felt in the most interest-sensitive sectors, while inflation continues to decline.  Although the market is pricing in the end of the period of contractionary monetary policy, a backfire could happen if geopolitical tension in the Middle East affects trade volume and oil price.
• Near the release of corporate results and guidance for next year, earnings growth is moderating unevenly across economic sectors. Although the financial cost does not pose a threat, consumption spending could be damaged because of lower purchasing power of wages and the depletion of post-pandemic savings.
• The war between Israel and Palestine intensifies and its influence in the region spreads, while the conflict between Ukraine and Russia reignites. Both occur in key commodity countries, so if these conflicts drag on over time or tension increases, we could see an increase in commodity volatility and higher inflation.