Cross Asset Investment Strategy - May 2024

IMF spring meeting take-aways: short-term resilience, but no reacceleration in the mid term

Key Takeaways

• The IMF outlook highlights the remarkable resilience in growth and declining inflation in most countries. However, the medium-term outlook remains subdued when compared to the pre-pandemic growth average.
• Although inflation is softening, its reduction remains a priority and central banks need to calibrate monetary policy at a country level.
• The tremendous optimism in financial markets based on the soft-landing narrative presents challenges: inflation persistence, compressed volatility and high correlation across assets with elevated fundamental uncertainty.

• Macroeconomic focus: 2024: a more challenging context for the Fed’s pivot
• Emerging markets: China: Domestic demand stalemate & India: India’s economy remains robust
• Macroeconomic snapshot
• Central banks watch: Fed diverging from main DM central banks; EM peers turning slightly more cautious
• Geopolitics: The geopolitical heat is rising
• Policy: EU: New proposals to deepen the CMU
• Main and alternative scenarios 
• Amundi Investment Institute models: Combining Economic and Inflation Cycles: Amundi Twin Phazers
• Equities in charts: DM: A breather and a broadening would make sense
• Bonds in charts: DM: Pricing of Fed and ECB easing for 2024 – a gap is opening up
• Commodities
• Currencies

Searching for bright spots in a trickier phase

Recent inflation and growth data from the US indicates continued strength in the economy, leading us and various institutions including the IMF to revise up US growth. We see the current strong momentum to continue into Q2 but expect a deceleration in H2, without negative growth in any quarter. Data on the inflation side also points to stickier prices, with upside risks from the recent geopolitical escalation (oil). This opens a difficult phase for central banks such as the Fed for which we expect fewer rate cuts but higher uncertainty around policy actions.

May 2024