Saxo launches its Quarterly Outlook report for Q2 2024, lamenting a ‘wasted year’ for the global economy

Election fever and a global equity rally have in 2024 combined to “mask the inconvenient truths underlying our economy” such as rapid debt accumulation, high real interest rates and ongoing geopolitical tension, Saxo’s global strategists have declared in this quarter’s Saxo Quarterly Outlook report.

As elections in key market countries (such as the United States, European Union and India) dominate global discussions, Saxo’s strategists highlight the events and indicators in Q2 2024 that investors and traders should keep an eye on. They also explore whether this focus on elections is diverting attention from the actual figures affecting global markets.

In his macro note, “It’s all about elections and keeping status quo”, Saxo Chief Investment Officer Steen Jakobsen emphasises that “election optimism and a rally in equities have so far masked the inconvenient truths underlying our economy, where debt continues to grow faster than GDP.”

The current wave of optimism in the stock market, Jakobsen argues, hides a more uncomfortable truth – the global economy is in a delicate state. Central banks around the globe are tightening the purse strings, which, when combined with high real interest rates and the mountain of existing debt, could spell trouble for economic momentum.

For this reason, Saxo’s strategists argue investors should in Q2 2024 reduce their exposure to equities in favour of fixed income and commodities.

Saxo Head of Fixed Income Strategy Althea Spinozzi argues in her fixed income note that the potential easing of central bank monetary policies presents a compelling reason for investors to consider extending the duration of their portfolios – although caution is advised for very long-term investments due to persistent inflation concerns.

In equities, Saxo Head of Equity Strategy Peter Garnry encourages a more neutral approach to US equities in the face of “speculative fever” in AI-related stocks such as Nvidia. He is also overweight European equities, particularly in the European defence sector, and underweight Japanese equities due to Yen currency risk.

Saxo Head of Commodity Strategy Ole S. Hansen states the commodities market is showing signs of recovery following a year-long consolidation period, buoyed by potential central bank rate cuts, which may soften the US dollar and reduce funding costs.

Lastly, Saxo Head of FX Strategy Charu Chanana argues expectations of a US Federal Reserve rate cut in June or July will create fresh opportunities for FX traders in Q2, especially in activity currencies such as the Aussie dollar and in emerging market currencies.

As Q2 2024 unfolds, Saxo reiterates that it’s important to have a balanced and strategically diversified investment approach. With a year full of major elections, it isn’t just “about playing the markets, but rather recognising the narrative driving investor sentiment,” Jakobsen concluded.