Daniel Morris, chief market strategist at BNP Paribas Asset Management, believes that the European Central Bank may cut interest rates in the spring before the Federal Reserve because the eurozone economy is currently weaker than that of the United States.

In an interview, he said that the ECB should cut interest rates first, which "can imagine" happening in March or April. He believes that inflation in the eurozone and the United States is very similar, but the eurozone may have already experienced a recession in the fourth quarter of 2023, especially in Germany. In contrast, US economic growth remains strong, and the Fed can wait for more signs of slowing down.

Refinitiv data showed that the money market has fully digested the impact of the European Central Bank's first 25 basis point rate cut in April, and believes that the probability of a rate cut in March is more than 50%. The Federal Reserve expects the first 25 basis point rate cut in May, and the probability of a rate cut in March is also very high.

However, going into 2024, Morris believes that even if the eurozone's economic growth this year will not be particularly strong, it should still be stronger than last year, and the US economy is expected to have a soft landing, avoiding a recession, but with slower growth. He said this means that the eurozone's growth momentum is better in relative terms - even if the eurozone's actual growth rate is slower.

Morris also noted that bonds should rally in 2024, causing yields to fall, but by less than the market's optimistic expectations. He is cautious given that money markets have already priced in the impact of this year's Federal Reserve rate cuts:

“When you have a recession, bonds have a very good year, but that’s not our baseline scenario... Even in a soft landing (scenario), this year should certainly be a good year for bonds, but there’s no sign yet that it’s going to be a particularly good year.”

Bank of America's December monthly global fund manager survey showed that investors increased their net bond positions by 20%, the largest increase in bond holdings since March 2009. The survey also showed that 45% of fund managers expect bonds to be the best performing asset class in 2024.

The article is forwarded from: Jinshi Data