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State Street Global Advisors maintains soft landing forecast despite trimmed rate cut expectations

  • June 07 2024
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State Street Global Advisors maintains soft landing forecast despite trimmed rate cut expectations

By Newsdesk
June 07 2024

State Street Global Advisors (SSGA) has released its midyear update of the Global Market Outlook, highlighting the resilience of risk assets despite increased uncertainty, stickier-than-expected inflation, and a deepening Middle East conflict.

Although rate cut expectations have been trimmed amid persistent inflation, SSGA maintains its soft landing forecast for the economy. The report notes that bond markets, regarded as the likeliest winner for 2024, have struggled as inflation lingered, spawning "higher for longer" concerns.

In terms of the macroeconomic outlook, SSGA believes disinflation will continue in the US, and economic activity will be weaker this year relative to last year. The firm anticipates the Fed will be in a position to lower interest rates as early as this summer, with a soft landing still being the base case scenario.

The report points to broadening signs of momentum loss in consumer discretionary spending, expanding signs of erosion in labour demand, and widening signs that the big fiscal impulse to growth is beginning to fade. SSGA sees moderation in demand facilitating moderation in inflation, both in labour and goods/services markets, allowing for rate cuts that preserve and nurture the soft landing. Outside of the US, the firm expects the European Central Bank (ECB) to deliver a first cut in June.

On the geopolitical front, SSGA notes that 2024 was always going to be a turbulent year, with US elections carrying their own inherent policy risks that directly affect the world's largest capital market and indirectly impact the majority of global public assets. The elections are occurring against a backdrop of deeper rifts in the global order, several armed conflicts, fiscal headwinds, and protectionism.

As a consequence, the coming months will have a higher-than-normal threat of geopolitical shocks that affect markets. The report states that the global order has frayed, and malicious actors have more room to manoeuvre in an election year than they might otherwise have.

Aside from the Middle East tensions, SSGA highlights that several other regions present the potential to reset risk perceptions, with the centrality of East Asia in the world's global supply chain meaning that any headline risk could have an outsized market impact.

State Street Global Advisors maintains soft landing forecast despite trimmed rate cut expectations

State Street Global Advisors (SSGA) has released its midyear update of the Global Market Outlook, highlighting the resilience of risk assets despite increased uncertainty, stickier-than-expected inflation, and a deepening Middle East conflict.

Although rate cut expectations have been trimmed amid persistent inflation, SSGA maintains its soft landing forecast for the economy. The report notes that bond markets, regarded as the likeliest winner for 2024, have struggled as inflation lingered, spawning "higher for longer" concerns.

In terms of the macroeconomic outlook, SSGA believes disinflation will continue in the US, and economic activity will be weaker this year relative to last year. The firm anticipates the Fed will be in a position to lower interest rates as early as this summer, with a soft landing still being the base case scenario.

The report points to broadening signs of momentum loss in consumer discretionary spending, expanding signs of erosion in labour demand, and widening signs that the big fiscal impulse to growth is beginning to fade. SSGA sees moderation in demand facilitating moderation in inflation, both in labour and goods/services markets, allowing for rate cuts that preserve and nurture the soft landing. Outside of the US, the firm expects the European Central Bank (ECB) to deliver a first cut in June.

On the geopolitical front, SSGA notes that 2024 was always going to be a turbulent year, with US elections carrying their own inherent policy risks that directly affect the world's largest capital market and indirectly impact the majority of global public assets. The elections are occurring against a backdrop of deeper rifts in the global order, several armed conflicts, fiscal headwinds, and protectionism.

As a consequence, the coming months will have a higher-than-normal threat of geopolitical shocks that affect markets. The report states that the global order has frayed, and malicious actors have more room to manoeuvre in an election year than they might otherwise have.

Aside from the Middle East tensions, SSGA highlights that several other regions present the potential to reset risk perceptions, with the centrality of East Asia in the world's global supply chain meaning that any headline risk could have an outsized market impact.

State Street Global Advisors maintains soft landing forecast despite trimmed rate cut expectations

State Street Global Advisors (SSGA) has released its midyear update of the Global Market Outlook, highlighting the resilience of risk assets despite increased uncertainty, stickier-than-expected inflation, and a deepening Middle East conflict.

Although rate cut expectations have been trimmed amid persistent inflation, SSGA maintains its soft landing forecast for the economy. The report notes that bond markets, regarded as the likeliest winner for 2024, have struggled as inflation lingered, spawning "higher for longer" concerns.

In terms of the macroeconomic outlook, SSGA believes disinflation will continue in the US, and economic activity will be weaker this year relative to last year. The firm anticipates the Fed will be in a position to lower interest rates as early as this summer, with a soft landing still being the base case scenario.

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The report points to broadening signs of momentum loss in consumer discretionary spending, expanding signs of erosion in labour demand, and widening signs that the big fiscal impulse to growth is beginning to fade. SSGA sees moderation in demand facilitating moderation in inflation, both in labour and goods/services markets, allowing for rate cuts that preserve and nurture the soft landing. Outside of the US, the firm expects the European Central Bank (ECB) to deliver a first cut in June.

State Street Global Advisors maintains soft landing forecast despite trimmed rate cut expectations

On the geopolitical front, SSGA notes that 2024 was always going to be a turbulent year, with US elections carrying their own inherent policy risks that directly affect the world's largest capital market and indirectly impact the majority of global public assets. The elections are occurring against a backdrop of deeper rifts in the global order, several armed conflicts, fiscal headwinds, and protectionism.

As a consequence, the coming months will have a higher-than-normal threat of geopolitical shocks that affect markets. The report states that the global order has frayed, and malicious actors have more room to manoeuvre in an election year than they might otherwise have.

Aside from the Middle East tensions, SSGA highlights that several other regions present the potential to reset risk perceptions, with the centrality of East Asia in the world's global supply chain meaning that any headline risk could have an outsized market impact.

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