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Inflection point: The cost of US debt reached an unsustainable US$1 trillion per year: November 2023 Market Commentary

Global Macro: Global economy is slowing down

The global equity and bond markets sold off in October, due to the disruption caused by the Israel-Palestinian war, the heterogeneous earning season and the globally higher interest rate environment that is likely to last until late 2024.

The Hamas attack on Israel triggered demand for safe-haven assets, such as US dollar and gold, which rose 7.9% in October.

Global growth is expected to slow down in 2024 from 3.1% in 2023 to 2.7% in 2024 with US growth decreasing from 2.5% to 1.2%, flat in Europe at close to zero and stable in China with a growth target of 5%.

In the US: US Nonfarm Payrolls declined: The US economy added 150K jobs in October, compared to 297K in September, which was below market expectations of 180K. Job gains occurred in health care, government, and social assistance while employment declined in manufacturing due to strikes. Meanwhile, the jobless rate rose to 3.9%, the highest since January 2022. These negative economic figures triggered an inflection point for the interest rate market that is now assuming that all the major central banks (except for the Japanese BOJ) are done hiking rates. Consequently, interest rates and bond yields have started to decrease gently since the beginning of November.

In Europe: Retail sales declined by 0.3% in October, marking the third consecutive month of decrease, due to persistently high inflation and elevated borrowing costs. The services PMI (Purchasing Manager Index) fell for a third consecutive month. Demand conditions worsened, as new business volumes dropped. The manufacturing PMI was down in October for the sixteenth consecutive month.

In China: China’s March 2023 NPC (National People’s Congress) delivered a comprehensive set of institutional restructuring measures, showing the government’s willingness to promote technology innovation and sustainable economic growth with a target of 5%. These measures include the property sector support, consumption stimulus, private sector support, and plans to resolve the debt issues in the local government financing vehicle (LGFV).

Financial Markets: Investors around the world have never been more invested and concentrated in US assets

The current global investment market context is quite exceptional, as investors around the world detained, on average, the most concentrated investments ever in US assets, including both stocks and bonds.  This creates a latent risk for US assets if investors decided to diversify their holdings into other regions.

Equity: In October, global equity markets sold off ~4% on rising long term yields and an economic slow down. US equity performance was negative (S&P 500 -2.2% Nasdaq100 -2.8%,). Eurostoxx sold off 2.7% and Chinese stocks HSCEI -4.7%. Fixed Income: The 10-year US yield kept its upward momentum and gained 30bps to 4.88%, however the 10-year German yield was flat at 2.81%.  Within this risk-off mood, High-Yield bond prices in USD and EUR continued selling-off ~-1%. Currencies: The USD seems to have peaked and was relatively stable versus the main currencies. Commodities: Gold gained 7.9% underpinned by the wars’ disruptions and the anticipation of falling interest rates in 2024. Oil prices dropped 10.8% on uncertainties in US and Chinese demand within the slowing economic environment.

Equities: Risk-off mood as interest rates keep rising

Global equity markets have been declining since August and lost ~4% in October with a year to date average positive performance still close to ~5%.

In the US:

The S&P500 lost 2.2% and the Nasdaq lost 2.8% in October amid a volatile month. The US third-quarter corporate earnings reporting season has been positive, with 70% of companies beating earnings estimates with an average earnings growth of ~3% year on year. However, the Big Tech sector, including Tesla and Alphabet, disappointed.

In Europe:

The EuroStoxx50 lost 2.7% as economic fundamentals keep deteriorating: Germany is in recession and the growth in the whole of Europe is anticipated at zero or worse next year, with euro refinancing interest rates at the highest since 2000. Geopolitical events on the doorstep of Europe, the Russia-Ukraine and the Israel-Palestine wars, inflict a risk premium on European assets.

In China:

China stocks fell ~4% in October as global investors considered the government stimulus package and measures were still insufficient to maintain a sustainable 5% growth target. The new government stimulus included an extra CNY 1 trillion (USD 140bn) in central government bond issuance, part of which is to be reinjected in the economy, in public spending, to boost growth.

Currency outlook: The USD peak is likely behind us

EURUSD: Entrenched in the [1.05 ; 1.10] range with the risk it breaks below the 1.05 support

Following the bad results of the US economy in October (the new employment figure was 50% below expectations) and the announcement that there will likely be a US interest rate cut in 2024, EURUSD moved up from 1.05 to 1.0750.  As the recession in Europe is expected to be worse in 2024 and there are 2 wars close to Europe, the EURUSD may go back down and below its 1.05 support. In these circumstances, we believe EUR hedging (downside protection) for exporters towards Europe is a must.

USDRMB: Stabilizing at the all time high with the risk of breaking down below the 7.30 support level

Following the above mentioned bad US economic figures in October, USDRMB started to show weakness and several times broke its 7.30 long term support which is close to the all time high. As US rates and growth are anticipated to decline in 2024 versus a relatively stable China in terms of interest rates and growth, market participants anticipate a lower USDRMB in 2024 with the risk of the USDRMB to decline towards its level of last year of 6.70 and then 6.30. That is why we believe it likely makes sense for corporations exposed to the weakness of USDRMB, such as manufacturers in China or purchasing offices of Chinese goods, to protect (hedge) against a drop of USDRMB.

USDJPY: Stuck at the all time high of 150 until the Bank of Japan exits their negative interest rate policy

USDJPY rose close to an all time high at 150. The short term interest rate differential between Japan (-0.10%) and the US (+5.50%) is the main driver of the USDJPY strength. As inflation in Japan is at 3% and is expected to stay above 2% for the next 12 months, the BOJ (Bank Of Japan) is likely to exit from its negative interest rate policy sometime in 2024. When this happens, the market reaction may be violent and USDJPY may revert back to last year’s level toward 120, i.e. USDJPY could experience a fast 20% drop within the next 12 months.

Fixed Income: Window of opportunity remains in Deposits and Bonds

In October, the 10-year US Treasury yield continued to rise, hitting 5% for the first time since 2007, as the US Federal Reserve declared it will maintain high interest rates until inflation stabilizes around 2%. A further increase in interest rates is unlikely as it would exacerbate the increasing cost of the US public debt, which is reaching USD 1 trillion a year.

We believe there is a window of opportunity that we have not seen in the past 20 years where it is now possible to receive a substantial income from cash deposits, 3 to 6 months duration (5.5% in USD or 3.75% in EUR). High interest rates can be locked for longer by investing cash in bonds from large investment grade banks that can provide an income per annum of 6% net in USD or 4% net in EUR from 2 to 10 years duration.



Oil prices dropped 10.8% in October on uncertainties in US and Chinese demand within the slowing economic environment. The EIA (Energy Information Administration) said that total petroleum consumption in the US is expected to decrease by 300,000 barrels per day this year. Latest data also showed that US crude inventories increased by nearly 12 million barrels. In China, weaker-than-expected inflation and trade figures hurt the demand outlook in the world’s top crude importer.

Gold: Central banks buying gold provides a “floor” to gold prices

Gold prices rallied 7.9% to USD 1,994/oz in October as the safe haven was underpinned by the wars’ disruptions and the anticipation of falling interest rates in 2024. All Central banks together, are purchasing around 1,000 tons of gold per year which is the highest pace in half a century. This provides a “floor” to gold prices, and when there is a gold retracement close to 1,900, this may be a buying opportunity within, what we believe, to be a bullish context for Gold: US interest rates are stabilizing and will decline, USD will resume its bearish trend at some point within the next 12 months, the geopolitical uncertainty remains elevated (US-China tensions, wars in Ukraine and Palestine) and central banks have an on-going gold purchase program to diversify away from the sanctions prone USD.


  • Russia-Ukraine, Israel-Palestine, war escalation: A worsening of the war would affect Europe the most, and if the Russian army crosses the Belarus border, which is 150km north of Kiev, EURUSD could drop fast towards 0.90. In addition, the US and Asia could suffer a stronger economic slowdown amid surging commodity prices.
  • US-China tensions: US-China friction remains strong, with increasing tension around Taiwan and the South China Sea.
  • Recession:  So far, the US has escaped recession although growth has been tepid, while in Europe anticipated growth lies within the [-0.5%; +0.5%] range. By contrast, Asia is experiencing stronger, sustainable growth, fueled by China’s rapid recovery (5% expected growth for 2023). Depending on how corporates and governments navigate the new inflationary period with higher interest rates, recession remains a key risk to monitor.


  • Income from safe cash deposits: Cash can be safely placed in cash deposits and earn annualized net interest, e.g. over a period of 6 months: USD 5.50%, EUR 3.75%, GBP 5.00%.
  • Income from Investment Grade bank bond issuers: Major banks are implicitly protected by central banks as demonstrated in the Credit Suisse crisis where actual bonds (not AT1) remained secured. Bonds have already mostly integrated the central banks’ ambitious interest rate hiking cycle. Investors can enjoy a substantial yield from a diversified bank bond portfolio of 2-year duration: USD 6%, EUR 4%, GBP 5%.
  • Japanese yen: The JPY is extremely undervalued, at 150 yen to the US dollar, which is the all time high. The anticipated change in BoJ’s monetary policy in 2024 could trigger a rapid yen re-appreciation of 20%.
  • Nuclear energy: We believe the nuclear sector will be instrumental in the world’s decarbonization efforts. To achieve fossil fuel reduction targets, the nuclear power industry’s safety standards need to be brought to the next level, for instance by using new technology to recycle uranium. New “green” nuclear energy is the number one priority of President Macron in France, while being high on the agenda in the US and China, which will build 150 nuclear power plants in the next 15 years.
  • Defense and security: The war in Ukraine and Palestine has triggered massive investment in military defense and the overall security sector – including cyber, food, energy and semiconductor supply security – in Europe and around the world.