2023-12-20 09:06:18
Bank of America sets a date for the first drop in interest rates in the eurozone. According to the estimates of the American investment giant, this decision will come in June 2024.
The entity’s chief economist for Europe, Rubén Segura-Cayuela, points out that “the market has run too much and is very optimistic” regarding large and premature drops in interest rates by central banks.
When explaining his bet that the ECB will carry out its first cut in June, Segura-Cayuela has argued that the entity chaired by Christine Lagarde will wait until May to receive benefits and salary data (such as unit salaries).
Linked to this, the manager has stressed that despite the verifiable growth in salaries – “we have very little evidence that salaries have important second round effects”, he added -, the decline in inflation will not be affected and will be will be offset by the reduction in business margins.
“What’s more, from what we have seen from the ECB’s telephone survey of companies, I would say that the adjustment of business margins is even happening faster than we all expected,” Segura-Cayuela pointed out.
Thus, the entity has stated that Those rate cuts will be slow and that the deposit rate will stabilize at 2% in mid-2025 to carry out additional cuts from 2026.
Spain will grow 1.2% in 2024
Looking at the macroeconomic outlook, Bank of America predicts very moderate growth for Europe in the coming quarters (stagnation, with flat growth rates) with a modest acceleration at the end of 2024 and throughout 2025 thanks to falling inflation, greater security of energy supply, the beginning of a cycle of rate cuts, a slight fiscal tightening and the reacceleration of the world economy.
More specificallySpain, better positioned than the rest of Europe, would register growth rates slightly above 1% in the next two years (it expects an increase of 1.2% in 2024 and 1.5% in 2025). Figures that, however, are below the consensus average.
According to BofA, Spain will have to address an unstable political situation, and long-term challenges remainsuch as that “the economy has to face low productivity; the great rigidity of some markets; fiscal imbalances and the reallocation between sectors of the still large group of unemployed.”
Regarding inflationary prospects, they have pointed out that it is likely that the imbalance between depressed demand and relatively resilient supply, together with excessive tightening of the ECB, leads inflation to be below 2% in 2025, although in the coming months rebounds and resistance on the part of underlying inflation are not ruled out.
On the other hand, they have focused on the fact that in 2024 the economy will pivot strongly around geopolitical risks, an electoral calendar that will find its maximum expression in the US presidential elections, the withdrawal of expansive fiscal policies and the return of tax rules.
“For me the main risk, we will see if [en la reunión del Ecofin] There is an agreement today or I don’t know if for next year, it is that we end up with fiscal rules that again generate too little demand in Europe or a chronic deficiency of aggregate demand in Europe that returns us to the low inflation equilibrium that we had just before the pandemic,” commented Segura-Cayuela.
Market vision
For 2024, Bank of America predicts an underperformance of cyclical stocks compared to defensive stocks, as well as of ‘value’ stocks (underweight value of a company compared to its real value) versus growth stocks (‘growth’ in industry jargon).
Along these lines, he points out that Europe is a cyclical region with a high ‘value’ component, which may cause European equities to register a lower performance than expected for the MSCI World index.
Thus, the entity’s experts consider, together with the aforementioned forecast that business profits will fall, that the European Stoxx600 index would contract by 15% in the middle of the year, at which point a recovery trend would begin.
Gold could hit all-time highs
The global head of raw materials and derivatives at Bank of America, Francisco Blanch, pointed out in the second part of the conference that gold – as well as precious metals in general – has a bullish potential that could take the ounce to an all-time high of $2,400 – the current all-time high is around $2,100.
The explanation would be found in the foreseeable scenario of lower interest rates, which would reduce the strength of the dollar – and, consequently, gives more value to the safe haven asset par excellence -, in addition to the fact that central banks would continue to strongly purchase this raw material. and new investment flows would enter from another profile of investors.
More generally, Blanch has noted that we are now in a replenishment cycle that will extend throughout 2024 due to rate cuts and will result in a bullish momentum for commodity prices.
“We could eventually see upward pressure in energy, although I think that will take a little longer to materialize, which could give a little oxygen cushion to central banks,” Blanch argued.
Given this situation, Bank of America projects that the barrel of Brent crude oil, the benchmark in Europe, will reach $90 for next yearwhile the American WT would be around $86, as they expect a “significant cut” by the OPEC led by Russia and Saudi Arabia and observe that the market “may be being too optimistic” about recent events in the Middle East.
However, they foresee a drop in refining margins, meaning that “perhaps we will have lower fuel prices as a whole.”
In the area of gas marketBlanch observes for TTF gas, the benchmark in Europe, an oscillation between 35 euros/MWh as a floor and 70 euros as a ceiling, while the target for a ton of copper would be 10,500 dollars and for aluminum at 3,500 dollars. .
However, Blanch has also commented on the announcement by shipping companies not to transit the waters of the Red Sea due to the danger posed by the Houthi rebels, which will result in longer and more expensive routes that could act as an upward catalyst for commodities. premiums and freight prices.
Likewise, he has highlighted the inherent volatility in these markets and assets as a consequence of geopolitical risks (Ukraine, Israel, China-Taiwan, etc.) that can alter everything: “any escalation could trigger a jump [del crudo] at $130.”
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