Market commentary Q2 - 2024

Macro-economic and political facts for 2nd quarter 2024

After very high levels in 2023, US growth is slowing in 2024. This is illustrated by growth in the 1st quarter (+1.3% annualized), which marks a clear deceleration compared with previous quarters (+3.4% in Q4 2023 and +4.9% in Q3 2023). In Q2, the statistics published in the United States confirm the growing doubts about the robustness of the economy. However, while there are signs of fragility, notably in the real estate market and consumer confidence, it is premature to suggest that a recession is imminent. This economic downturn has not been reflected in a fall in inflation, which, after rising slightly in the 1st quarter, seems to have stabilized at between 3% and 3.5%. This level is still a long way from the Fed's targets and therefore offers no hope of a rapid easing in monetary pressure. This has led investors to lower their expectations of monetary easing. At the end of June, the markets were now expecting only one or two rate cuts by the Fed by 2024, compared with 3 at the end of the 1st quarter and - remember - 6 cuts at the start of the year. In the eurozone, the statistics continue to paint a very uncertain economic picture. Growth is sluggish. Inflation has been hovering around 2.5% for several months. This level is now relatively close to the target set by the ECB, which cut its key rates by 25bps. Although this decision was widely anticipated, it does not pave the way for further rate cuts in the near future. Monetary prudence remains the order of the day. To sum up, there is nothing really new to report for the 2nd quarter, with still a great deal of uncertainty about the economic outlook, but also about the monetary trajectories of the central banks.

The surprise came from France with President Macron's decision to dissolve the National Assembly on 9 June, following his party's poor results in the European elections, triggering legislative elections. This announcement was received negatively by the market. The possibility of a coalition centered around the far-left party coming to power is not reassuring for the markets. This uncertainty explains the rebound in volatility on the European markets, and particularly on French stocks. The yield spread between France and Germany jumped from 0.50% to 0.80% on 10-year maturities.

The prospect of a less accommodative monetary framework than had been hoped for explains the slight pressure on rates over the period. In the 2nd quarter, the US 10-year rate rose by 20 bps to 4.40%. The same was true in Europe, with a similar rise in the German 10-year to 2.50%. On the equity markets, with the exception of June in Europe, volatility and risk aversion remained at low levels. In the 2nd quarter, European equities clearly underperformed, posting returns close to zero overall, while US equities rose by around 4%.

Unlike the European indices and the CAC 40, our European Equities fund hardly fell at all, as it is made up of high-growth stocks and only 19% of its assets are exposed to France. It ended the half-year up 12.6%.

Our MW International Bonds fund fell back slightly over the quarter with the sharp rise in interest rates in June.

We remain cautious on equity exposure, retaining international companies that are leaders in their sectors and investments in USD and CHF currencies to diversify away from the Euro.

We are maintaining our commodities theme, with gold, copper, silver and oil, which we believe have good future potential.

Cyril Deblaye, Chairman and CEO of MW Gestion
Written on 8 July 2024