A newsy start to the New Year 2024

A very newsy start to the year indeed. Global markets are agog with multiple news flows. To begin with, “what is already priced in the bond markets?” is the biggest question investors are asking. Do bond prices incorporate 1, 2 or 3 rate cuts; what will be the scale of each cut and what can be the frequency? What messages do we seek in the Fed speak to get clues of further cuts etc.

Also, most investors are caught in a dilemma. While the US economy continues to stay resilient for now, new job advertisements, taken as a better barometer of where the economy is likely to go in the future compared to unemployment numbers, are showing a declining trend indicating an impending slowdown in economic activity rather than a recession at least at this time.

Do investors take part in the global asset inflation caused by expectations of lower interest rates, or do they hunker down in safer assets knowing that the US economy may enter a recession later this year? This is the dilemma facing US investors currently. Global investors are even more at sea knowing various geo-political events are likely to shape markets in the coming year.

One thing though is certain - the markets this year may remain heterogenous. There will be marked differences in market performance across geographies. Hence an asset call may not prove to be foolproof this year. Which equities is the question to ask rather than “whether equities or bonds?”.

Given the general trend in interest rates across the world, it is likely to remain a place of interest for investors who are looking for a more sedate experience sans much volatility. However, bond markets too are vulnerable to Fed statements especially if they have misread the degree of cuts ahead in the year. Any caution or delay in the rate cut scenario is likely to hurt bond markets also in the short term.

India is a little away from global events this year.

India has received much media attention of late given improving economic forecasts of GDP growth. Also corporate profits continue at a significant clip. Valuations are always in the limelight given so much optimism but overall India appears to be in a good space.

Inflation, commodity prices and cyclical recovery remain areas to monitor over the next few quarter. Investors whether global or local need to monitor key events, remain sufficiently liquid over the next few quarters to be able to move across asset classes given the expected volatility and stay diversified.

The Union Budget this year will remain a “vote-on-account” and may not provide clues for capital expenditure for the rest of the year from the central government point of view. However revenue targets will indicate the confidence in the economy for the year ahead.