• 2023 is ending with a bang, as global investors wildly celebrate the end of the monetary tightening cycle, while anticipating quick disinflation, aggressive rate cuts and solid profit growth. The markets are not priced for perfection, but Goldilocks are increasingly consensual.
• We fear that the US economy will finally come to a near halt in 1H24. Central banks may also fear that the sharp easing of financial conditions will make the ‘last inflation mile’ more difficult, hence will not rush into Q1 rate cuts.
• We see more downside in bond yields, but more in the US than the EA. Instead, we prefer EUR Credit to USD. We also continue to favour Investment Grade Credit early in the year. We expect a positive year for High Yield Credit and Equities, but soft performance early on. The USD should weaken overall, if not quickly, and the Yen recover.
• 2024 will see then great volatility convergence, with Rates vols set to fall, whilst Equity, Credit and FX vols should rise initially. Those willing to surf the late 2023 risk rally should do so via options. 2024 will offer many wild cards, from the risk of deeper China deflation to the BoJ policy turn and an exceptionally heavy electoral agenda.

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