Deutsche Bank
Research
The house view: snapshot
A balancing act
#PositiveImpact
Macro views
World United States
— Global growth expected at 2.9% in 2024, rising to 3.2% in — Soft landing is now the baseline with the economy
2025. We no longer expect a recession in the US & the EU. expected to remain resilient in 2024.
— Inflation possibly peaked, yet upside risks persist due to — Inflation has softened materially, with core PCE below
ongoing price pressures. target in H2 2023. Near-term inflation may firm somewhat
but expect the broader disinflationary trend to remain
— Geopolitical risks elevate supply chain vulnerabilities,
intact.
particularly in the Red Sea, Middle East and Ukraine.
Intensifying US-China competition adds to the challenges. — Labour market data has been robust but coming into better
balance, supporting sturdy consumer spending while allowing
— In 2024, around half of the world's population will be
for a smaller impulse to inflation.
heading to the polls including the US (Nov), India
(Apr/May), and the EU (Jun).
Europe Germany
— Europe is skirting around recession and a soft landing in — The German economy contracted by -0.3% in 2023. German
the US will support growth. We expect GDP growth of GDP stalled due to geopolitical factors, the energy crisis and
0.4% in 2024 (previously 0.2%), although this remains rising interest rates.
sub-trend.
— In 2024, we expect another -0.2% GDP decline.
— Transmission of the ECB’s monetary tightening has been
— The recent data underpins concerns that a recovery in
strong, weighing on interest sensitive spending. But there
domestic demand is not imminent, even if the surprising
are some signs of a peak in transmission.
robustness of US growth poses upside risks to external
— Inflation remains above target but declining faster than demand.
the ECB anticipated with inflation likely back at 2.0% yoy
in Q3-24, a year before the ECB expects.
China Emerging markets
— China's trend growth has declined in recent years, with — EM growth should outperform DM, as central banks will get
potential growth now estimated to be ~4.5-5%. more space to ease as DM cycle turns lower. The shape and
scale of China rebound will be important for
— Currently, the economy is operating below potential, with commodity/services exporters.
an average growth of 4.1% projected for 2022-23.
— Asia – Lowest carry but highest beta to a soft landing. Local
— A fiscal spending expansion of 1.5%-2% of GDP, coupled central banks likely to hold out longest on easing.
with a projected 45bps cut in the one-year MLF policy — LatAm – Will stay the course on normalising rates, subject to
rate by the PBoC in 2024, should be sufficient to raise fiscal and balance of payments risks.
GDP growth to 4.7% and inflation to 0.9% in 2024.
— CEEMEA – Risks now even for price-indexed rate cuts. Many
— Inflation rising modestly to just over 1% by YE 2024. country idiosyncrasies.
Key M Inflation continue to prove persistent – Inflation above target in both the US and Europe, and the
geopolitical backdrop may see upward pressure on commodity prices, leading to resurgent inflation.
downside M Increased vulnerability for supply chains – Risk of escalation of conflict in Israel/Gaza. The Ukraine-Russia
conflict will continue in 2024. US-China strategic competition to intensify, risk of further tit-for-tat
restrictions.
risks
M
A sharper deterioration in growth, constrained fiscal and monetary policy, with a risk of funding accident.
We expect global growth to fall further to 2.9%.
marion.laboure@db.com cassidy.ainsworth-grace@db.com jim.reid@db.com February 2024
thehouseview@list.db.com http://houseview.research.db.com
Deutsche Bank AG/London
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The house view: snapshot (continued)
February, 2024
Market views
— The US economy has demonstrated undeniable resilience in the last twelve months.
Market — Strong US growth will support risk assets but expect volatility due to geopolitical risk and risk of persistent
sentiment inflation.
— S&P 500 to 5100 by the end of 2024, with 5500 in an upside scenario.
— All measures of earnings beats in the US are well above the upper end of their pre-pandemic ranges.
Equities — At the sector level, we are: (i) Neutral mega-cap growth & Tech; (ii) Overweight financials, consumer
cyclicals, and materials; and (iii) Neutral industrials and energy.
— Across regions, we are overweight Europe, neutral US and EM, and underweight Japan.
%
— 10yr UST to decline to 4.15% and 10yr bund to reach 2.60%, by the end of 2024.
Rates — Relative to spot, we have shorter-term yields falling and longer-term yields remaining fairly steady, 2yr and
10yr yields at 3.75% and 4.15%.
— Our spread targets for YE 2024 are $IG and $HY at 110bps and 440bps, and €IG and €HY at 135bps and
480bps.
Credit — Credit will remain resilient in H1 2024, supported by strong US growth and central bank rate cuts by mid-
year.
— We shift to a no-landing view for our spread targets in H2 2024.
— We expect EUR/USD to stay weak through 2024.
FX — EUR/USD at 1.07 in Q2, but risks are skewed towards a strong dollar, with EUR/USD revisiting 1.05.
— US election a key driver as markets add to a USD safe-haven premium as election risks build into H2.
— 2024 Brent forecast at USD 88/bbl.
Oil
— We look for continued OPEC+ discipline in a nearly balanced market for H1, and seasonal strength in H2.
— Fed: First cut in June and a total of 100bps in 2024. Terminal rate of around 3.50% in 2025.
Monetary — ECB: First cut in April, with 150bps of cuts in 2024, and 50bps of cuts in 2025. Terminal rate of 2.00%.
policy — BoJ: NIRP to be lifted in March/April. A 25bps hike in Q4 2024, to 0.25%, and 25bps in H2 2025 to 0.50%.
— BoE: First cut in May, with 75bps of cuts in 2024, and 150bps cuts in 2025. Terminal rate of 3.00%.
— PBoC: Further easing by cutting the 1-year MLF rate by 45bps, with first cut in or before March.
Key macro & markets forecasts
GDP growth (%) Central bank policy rate (%) Key market forecasts
2024F 2025F Current Q1-24 F Q4-24 F Current Q4-24 F
Global 2.9 3.2 US: Federal funds rate 5.375 5.375 4.375 US 10Y yield (%) 4.29 4.15
US 2.4 2.1 Eurozone: Deposit facility rate 4.00 4.00 2.50 EUR 10Y yield (%) 2.40 2.60
Eurozone 0.4 1.5 Japan: Policy balance rate -0.10 -0.10 0.25 S&P 500 5006 5100
Germany -0.2 0.9 UK: Bank rate 5.25 5.25 4.50 Gold (USD/oz) 2023 2150
Japan 0.4 1.2 China: MLF 1Y interest rate 2.50 2.35 2.05 Oil WTI (USD/bbl) 79 83
UK 0.3 1.4 Oil Brent (USD/bbl) 83 88
China 4.7 4.5 USD IG 96 110
EUR IG 130 135
2024 Macro events calendar
March 2024 April 2024 May 2024
07 EZ ECB decision 10 SK South Korea legislative election 01 US Federal Reserve decision
17 RU Russia presidential election 11 EZ ECB decision 09 UK BoE decision
19 JN BoJ decision 15-21 IMF spring meetings
20 US Federal Reserve decision 19-21 IMF and World Bank meetings
21 UK BoE decision 26 JN BoJ decision
21-22 EU European Council meeting TBA IN India general election
— A balancing act, 20 February 2024
Recent — The race against time, 05 December 2023
editions — A cloudy mountain top 10 October 2023
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not
receive any compensation for providing a specific recommendation or view in this report. Marion Laboure / Cassidy Ainsworth-Grace / Jim Reid
