Eurozone stock markets doing well despite anaemic outlook.
Unlike in the US, the eurozone economy has not been particularly buoyant. Earlier this year, macroeconomic forecasts – including for GDP – were actually revised downwards again. Economists are now expecting growth to be sluggish in 2024. Demand for new loans from both individuals and companies is also still very weak because of the European Central Bank’s (ECB) tight monetary policy. On top of that, Germany has entered a mild recession brought on by softness in the manufacturing sector, and that has weighed on consumer confidence. But it’s important not to throw the baby out with the bathwater. In recent weeks, there’s been more good economic news than bad. Eurozone purchasing managers' indexes, for instance, gained ground for the fourth month in a row, suggesting that the cycle has bottomed out. There is often a lot of focus on the weakness in the German economy and little mention of the fact that France and southern peripheral countries are faring much better. Another positive point is that the latest figures show that inflation has continued to ease. Although its tone remains restrictive for now, the ECB should be able to cut interest rates significantly, perhaps even before the Fed does. That’s good news for Europe’s risk assets and should help to improve lending conditions.
Even though the economic outlook for Europe is not that appealing to most investors, the region’s stock markets have continued on their uptrend this year. Several major indexes have hit new all-time highs, driven mainly by a handful of top-notch international companies that posted excellent Q4 results. These companies include ASML, Novo Nordisk, LVMH and SAP, which are among the GRANOLAS (an acronym coined by Goldman Sachs for Europe's 11 largest companies). These companies offer better sector diversification and are often less expensive than the US’s Magnificent 7. The eurozone’s improving economic indicators and easing inflation should also help to push up the prices of the region’s stocks. We’re still bullish on cyclicals, which should do the best in these conditions.
Bitcoin’s at an all-time high
Since the US Securities and Exchange Commission approved bitcoin ETFs on 11 January, investors’ interest in these products has surpassed all expectations. After a relatively stable start, net subscriptions picked up, exceeding a daily average of USD 200 million in February. The largest index fund hit the USD 10 billion mark in less than seven weeks – it took more than two years for a gold ETF to do the same. On top of these inflows, bitcoin has been spurred by an upcoming reduction in supply. Every four years or so, the block rewards that miners receive are halved, and the next halving is expected in April of this year. In the past, prices have been boosted in the six months before and after such an event. Even though bitcoin prices have risen by more than 50% since the start of the year and are now at an all-time high, the mismatch between supply and demand could lead to further gains.
This week's figure : 80 bps
After initially forecasting that US interest rates would be lowered by nearly 2 percentage points in 2024, investors have trimmed that figure to just 80 bps. That amounts to three cuts of around 25 bps each, in line with the Fed’s forecast.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
