Economy
Market expectations of Fed cuts ‘overdone’, volatility to jump in ’24, BlackRock says
© Reuters. FILE PHOTO: The Federal Reserve building in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts/File Photo
By David Randall
NEW YORK (Reuters) – Global markets will be swayed by greater volatility in 2024 as the Federal Reserve cuts benchmark interest rates fewer times than futures markets are pricing in, strategists at the BlackRock (NYSE:) Investment Institute said at a panel discussion Tuesday.
Nevertheless, BlackRock, the world’s largest asset manager, continues to see opportunities in equities in AI stocks and technology, particularly in the memory sector, as well as quality factors. The firm has a slight underweight to US equities as a whole, though remains favorable on sectors such as industrials and health care.
“Market pricing for rate cuts is a bit overdone in our view,” said Wei Li, Global Chief Investment Strategist for BlackRock. “Rate volatility is here to stay.”
Markets are currently pricing in a greater than 50% chance that benchmark rates fall more than 125 basis points by next December, according to CME’s FedWatch Tool. Benchmark 10-year Treasury yields have fallen more than 80 basis points over the last month following signs of cooling inflation and weakness in the labor market, bolstering market assumptions that the Federal Reserve is done with its rate hiking cycle.
The shifting assumptions about interest rates will likely lead to a “windshield wiper market” in 2024, in which different sectors fall in and out of favor rapidly, said Tony DeSpirito, Global Chief Investment Officer of Fundamental Equities. He is particularly bullish on memory storage companies, which will play a key role in the growth of AI capability, he said.
“You are buying into memory at the bottom of a cycle that has the potential to be a super cycle,” he said.
Among emerging markets, the firm said that it is bullish on India and Mexico, and has a broad preference for emerging market assets over those in developed markets.
While markets may be expecting too much in the way of Fed cuts, the central bank has likely already hit peak rates, making fixed income more attractive overall, said Kristy Akullian, senior investment strategist at the firm.
The “greatest risk in holding too much cash,” she said.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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