Investing in 2024

As investors embark on strategies for 2024 — which is already shaping up to be another year of twists and turns — what are the most compelling themes that bear watching across the globe? Citi Research’s Global Strategy and Macro Group (GSMG) addresses the question in a recently published Must C report led by Dirk Willer, Head of Macro, Asset Allocation, and Emerging Markets Strategy, and Jabaz Mathai, Head of G10 Rates and FX Strategy. 

Ten Themes for Investing in 2024

1. Delayed Easing Cycles – Citi generally expects developed market (DM) central banks to start cutting rates later than the market is currently pricing in.

2. Higher Inflation Risk Premium – Breakeven inflation rates compressed substantially in DM bond markets in 2023. As central banks start cutting rates this year, our strategists think the inflation risk premia can rise with easing financial conditions.

3. Diverging Growth, Diverging Central Banks –  Citi expects to see divergence between Norway and Sweden on growth, inflation, and central bank FX activity. On growth, Citi economists see a soft-landing scenario for Norway and rate cuts not starting until the end of this year. This contrasts with a persistent, mild recession in Sweden as high rates weaken private consumption and business investment.

4. Broadening EPS, Broadening Markets – Our equity strategists see EPS broadening as a key dynamic to watch. Last year, earnings growth varied widely across regions, and was often concentrated in a few key sectors. This year, nearly all major regions should see positive EPS growth, with most sectors contributing positively. The team believes this environment will ultimately favor cyclical markets and sectors.

5. Recession in Mid-2024 –  A recession is our economists’ base case for the United States, beginning in the middle of the year. The increasing effects of the Fed’s aggressive hiking cycle—including tightening bank lending conditions, signs of strain in lower-income households, and a labor market that may be starting to loosen—point to gradually mounting recessionary pressures.

6. BoJ to Go Slow – With the Fed and European Central Bank clearly pivoting their policy stances, there is little pressure on the Bank of Japan to tighten monetary policy further. Our Japan rates strategists maintain their monetary policy outlook, with a baseline scenario of a U.S. recession in mid-2024 and simultaneous termination of Japan’s yield curve control and negative interest rate policy in April 2025.

7. Chinese Stimulus – The worst of China’s growth fears are receding as policy kicks into action, albeit selectively, with spending oriented toward the “three major projects” of social housing, urban-village redevelopment, and dual-use infrastructure (for both everyday and emergency use). That said, our strategists believe private sector sentiment may still struggle to recover, given that December’s annual Central Economic Work Conference provided no hint of massive consumption support policies nor new policy indications for the property sector.

8. Good Times in EM – Our emerging markets strategists see inflation in the region continuing to improve as oil and global food prices have been under downside pressure and likely falling within target ranges. With inflation coming close to target, high real ex-ante interest rates suggest central bank cuts, even if growth does not weaken substantially (though weaker growth should be expected and would of course speed up potential rate cuts). 

9. The Elections That Matter – 2024 is one of the biggest election years in history, with more than half the world’s population voting. Even so, many of the elections will not be overly market moving, either because outcomes are already relatively clear—or relatively benign for markets—no matter who wins. The biggest exception is the U.S. election. Although that one is far out, our strategists believe hawkish sentiment towards China will be a bipartisan issue. The UK election, which could take place late in the second quarter, may also be relevant in the local context.

10. Energy Infrastructure – The Energy Transition will have broad demand impacts on commodities, but some could take more time to materialize, given the overlapping use of certain commodities in more traditional sectors currently affected by a weak macro environment. The first one to play out could be U.S. natural gas exports, primarily via liquid natural gas (LNG). Since a new wave of U.S. LNG export terminals should enter into service, then the natural gas demand rise that requires a corresponding supply increase would lift prices.