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Stocks, Bonds & Gold climb as global inflation declines: December 2023 Market Commentary

Global Macro: Global economy still decelerating

Equities, bonds, and gold rose sharply in November, while major currencies appreciated against the US dollar. As inflation is moderating in the US (down to 3.2%) and Europe (down to 2.4%), the US Federal Reserve and the European Central Bank (ECB) no longer need to maintain high interest rates to slow the economy and thus tame inflation. The two central banks are expected to start cutting their key interest rates (currently 5.33% for the effective Fed funds rate and 4.50% for the ECB euro deposit rate) around mid-2024.

We believe this market context of declining interest rates and softer growth is positive for bond portfolios allocated to the best quality issuers as well as multi-asset portfolios (bonds + equity) as lower interest rates have a positive impact on equity valuations. This mechanical effect on equity prices should partly buffer the expected stock market volatility triggered by the global economic slowdown.

The US: Resilient but slowing down

The US economy added 199,000 jobs (nonfarm payrolls) in November, surpassing the 150,000 jobs added in October and beating market expectations of a 180,000 gain. However, we note US companies cut 45,510 jobs in November, up 24% from 36,836 in October, indicating that the job market is loosening, with most layoffs taking place in the tech, financial, transportation, and health care sectors.

Meanwhile, the core Personal Consumption Expenditures (PCE) index, the US Fed’s key measure of inflation, was revised down for the third quarter to 2.3%, coming close to the central bank’s target of 2%. As a result, Fed Governor Christopher Waller said he was “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.”

Europe: Sliding towards recession

The Eurozone’s annual growth rate contraction was confirmed in November, with growth reaching 0% (-0.4% in Germany), while industrial production in Germany fell 0.4%. In addition, inflation in the eurozone declined to 2.4% year-on-year in November, reaching its lowest level since July 2021 and falling below the market consensus of 2.7%.

China: Stabilizing growth at 4.9% with strong positive trade balance

Exports from China grew 0.5% year-on-year to USD 292 billion in November, beating market expectations of a 1.1% drop. Manufacturers have been cutting prices to attract buyers. As such, China’s trade balance surplus increased to USD 68 billion in November, from USD 66 billion in the same period last year, largely exceeding the market consensus (USD 58 billion), as exports expanded while imports contracted.

Financial Markets: Global year end rally

Stocks, bonds, and gold experienced significant increases in November, while major currencies strengthened against the US dollar. Investors around the world hold, on average, the most concentrated investments ever in US assets, including both stocks and bonds. This creates a latent risk for US assets as investors may decide to further diversify their holdings into other regions.

Equity: In November, global equity markets rallied around 7% on average, given declining long-term interest rates and the prospects that recession could be avoided in the US and growth would remain substantial in large Asian economies (e.g. China) as well as developing ones (e.g. India). Equity performance was strongly positive in both the US (S&P 500 +8.9%; Nasdaq 100 +10.7%) and Europe (Euro Stoxx 50 +7.9%), while Chinese stock performance was flattish (HSCEI -0.1%). Fixed Income: The 10-year US yield declined 52bps to 4.35% while the 10-year German yield lost 37bps to 2.45%. Amid this “risk-on” mood, High-Yield bond prices rose 1.2% in USD and 3.0% in EUR. Currencies: All major currencies strengthened versus the USD, especially the RMB, which gained 3.2%. Commodities: Gold went up 2.2%, reaching its all-time high of USD 2,135/ounce, underpinned by collapsing long-term interest rates. Oil prices dropped 6.2% amid increasing global supply as well as uncertainties about US and Chinese demand within the slowing economic environment.

Equities: Risk-on mood as interest rates keep declining

November was the best month of the year for global equity markets as they rallied around 7%, with a year-to-date average positive performance of about 13%. As economic growth continues to slow globally, we believe the greatest upside is in the main equity regional indices in the US, Europe, and Asia, which historically and statistically strongly outperform single stock picking, particularly in periods of macroeconomic weakness.

In the US:

The S&P 500 and Nasdaq 100 gained 8.9% and 10.7%, respectively, in November. US equities remain above their 15-year average in terms of price-to-earnings ratio. The market anticipates earnings per share for the S&P 500 to grow around 9% in 2024.

In Europe:

The Euro Stoxx 50 rose 7.9%, fueled by the collapse of the German 10-year yield by 37bps in one month. Yet, economic fundamentals keep deteriorating: Germany is in recession and growth in the Eurozone is now at zero, with euro refinancing interest rates at their highest since 2000. Geopolitical events on Europe’s doorstep, i.e. the Russia-Ukraine and Israel-Palestine wars, inflict a risk premium on European assets.

In China:

The performance of Chinese stocks was flattish in November as investors remain cautious on Chinese equities. Global investors considered that the Chinese government’s stimulus measures were still insufficient to maintain a sustainable 5% growth target. The new government stimulus, including an additional RMB 1 trillion (equivalent to USD 140 billion) in central government bond issuance, part of which is to be reinjected in the economy through public spending, is expected to boost growth.

Currency outlook: The USD peak is likely behind us

EURUSD: Entrenched in the [1.05; 1.10] range with the risk of breaking below the 1.05 support

EURUSD extended its decline below the 1.08 level, reaching its lowest level since mid-November as the ECB stated that it may start cutting interest rates faster than previously expected. As the recession in Europe is expected to worsen in 2024 and there are two wars close to Europe, the EURUSD may fall below its 1.05 support. In these circumstances, we believe EUR hedging (downside protection) for exporters to Europe is a must.

USDRMB: Declining from its all-time-high resistance of 7.30 with the risk of breaking below 7.00

USDRMB declined 3.2% in November, as Chinese state banks resumed selling US dollars versus RMB in the onshore market. USDRMB started to show weakness and broke its 7.30 support, which is close to the all-time high. As US rates and growth are expected 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 USDRMB falling towards its level of last year (6.70), then 6.30. That is why we believe it makes sense for corporations exposed to the weakness of USDRMB, such as manufacturers in China or purchasers of Chinese goods, to protect (hedge) against a drop in USDRMB.

USDJPY: Stuck close to its all-time high of 152 until the Bank of Japan exits their negative interest rate policy

USDJPY rose to its all-time high of 152 in November. 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 Bank of Japan (BoJ) is likely to exit its negative interest rate policy some time in 2024. When this happens, the market reaction may be violent and USDJPY may revert to last year’s level, closer to 120, i.e. USDJPY could experience a fast 20% drop within the next 12 months.

Fixed Income: A window of opportunity remains in deposits and bonds

As the US economy is slowing into the year end and inflation is continuing to decline globally, the market believes that major central banks have finished with rate hikes and we will begin to see rate cuts next year.

Consequently, bonds rallied across the board in November, led by a decline in government bond yields in both the US and Eurozone. Bloomberg’s global bond aggregate index had its best month since December 2008, and the US bond aggregate had its best month since May 1985. The 10-year US Treasury yield fell from a 16-year high of 5% in late October to 4.35%, while the 10-year German Bund yield declined from its peak of above 3% in early October to 2.45%.

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 substantial income from cash deposits, with duration of 3 to 6 months (5.50% in USD and 3.75% in EUR). High interest rates can be locked for longer periods by investing cash in bonds from large investment grade banks, which can provide an income per annum of 6% net in USD or 4% net in EUR, with a duration of 3 to 10 years.


Gold: Reached its all-time high of USD 2,135/ounce

Gold has rallied close to 12% year to date, reaching its all-time high of USD 2,135/ounce. It was fueled by declining interest rates, which lower the opportunity cost of holding non-interest-bearing assets such as gold. This level may be an opportunity for physical gold holders to lock this historically high level via hedging (protecting the downside). Gold hedging currently provides 4% net interest on the physical gold amount that is protected.

Oil: Bearish trend

Oil prices declined 6.2% in November amid increasing global supply as well as uncertainties about US and Chinese demand within the slowing economic environment. Data released in November showed that US gasoline inventories jumped by 5.4 million barrels, the largest increase in 3 months, indicating weaker demand. The temporary ceasefire between Israel and Hamas eased concerns that an escalation of the conflict could disrupt oil supplies amid rising oil production. The price of oil is now below the level prior to the Hamas attack on Israel in early October.


  • Russia-Ukraine and Israel-Palestine war escalation: A worsening of the Russia-Ukraine 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).


  • 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: 5.50% in USD, 3.75% in EUR, 4.50% in GBP.
  • 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: 6% in USD, 4% in EUR, 4.5% in GBP.
  • Physical gold hedging: The objective of the “Gold Hedge” Forward Contract is to protect the physical gold value expressed in USD from gold price volatility while earning 4% net interest on the physical gold deposit amount.
  • Japanese yen: The JPY is extremely undervalued, with USDJPY close to its all-time high of 152. 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 wars in Ukraine and Palestine have 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.