AFMC - As Global Economies Diverge Where Are The Investment Opportunities?
2024-06-23 12:30:00 ET
Summary
- While the Bank of Canada and the European Central Bank cut interest rates in June, the Federal Reserve decided to keep rates steady.
- While the European Union is in the throes of political uncertainty, the UK appears to have significant political certainty leading up to the July 4 election.
- In the last several weeks, we got election surprises in Mexico, South Africa, and India.
Last week, we published our midyear investment outlook , with an overarching theme of finding opportunities amidst divergence. We have Western developed economies all moving in the same direction - generally declining inflation and at or near the start of rate cuts - but at different speeds. Much of this divergence can be attributed to how each major economy reacted to the pandemic, with the US leading the pack in terms of stimulus, and how quickly each economy responded to the resulting surge in inflation. This is enough to create material divergences that are now playing out in how quickly respective central banks are beginning to cut rates.
The US signals comfort with keeping rates higher for longer
Last week, the Federal Reserve (Fed) decided to keep interest rates steady and suggested it is comfortable sitting at high levels for as long as it takes to feel confident that there will not be a resurgence of inflation. The “dot plot” released last week told us a lot about the Fed’s thought process - with median expectations for rate cuts this year falling to one. Equally interesting was the revision upward in the core Personal Consumption Expenditures Index, with the median year-end forecast increasing from 2.6% to 2.8% (it was just 2.4% in the December 2023 dot plot)....
As Global Economies Diverge, Where Are The Investment Opportunities?