A balancing act

DeutscheBank Research Abalancingact Distributedon:20/02/202412:28:08GMT TheHouseView #PositiveImpact marion.laboure@db.comcassidy.ainsworth-grace@db.comjim.reid@db.com February2024 IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.MCI(P)041/10/2023.UNTIL19thMARCH2021INCOMPLETEDISCLOSUREINFORMATIONMAYHAVEBEENDISPLAY7ETD,2PLsEeAS3ErS0EEOAtP6PEkNwDIXo1PFaORFURTHERDETAILS. MonthReview TheviewsinthispublicationareinformedbyDeutscheBank’sGlobalStrategyGroup,whichadvisesmanagementandclientsonbroadmarketrisksandglobaleconomicandfinancialdevelopments.Theviewsandforecastsofthegroup,whichconsistsofseniorresearchstaff,mayoccasionallydifferfromthosedisseminatedbytheirresearchcolleagues. Sources:BloombergFinanceLP,Reuters,FinancialTimes,BusinessInsider. DeutscheBankResearch|thehouseview@list.db.com|http://houseview.research.db.com|TheHouseViewFebruary20242 TheHouseView,20February2024 DeutscheBankResearch|thehouseview@list.db.com|http://houseview.research.db.com|TheHouseViewFebruary2024 3 AIcontinuestobeoneofthemostprofounddevelopmentsofourlifetimes,andIcontinuetobelieveithastheabilitytopushUSproductivitygrowthcomfortablyabove3%p.a.bytheendofthisdecade.Therewillbehiccupsalongtheway,butwithNvidiaalreadyup+47%YTD(thebestintheentireS&P500),andnowthe3rdlargestcompanyintheworld,itisclearthattheenthusiasmforAIisundimmed. TherecentperformanceoftheMagnificentSevenhashelpedeasefinancialconditionssubstantially,andoureconomistshaveboostedtheirUSgrowthforecastsnotablyinrecentweeks.Butevenwiththisupgrade,thereadthroughtoEuropeisnotexpectedtobesignificant,withEuroAreagrowth‘only’uptwo-tenthsatDBto0.4%in2024.InGermany,theweakdatasofarthisyearmeansthathaditnotbeenfortheUS/Europeupgrade,itwouldhavebeendowngradedfurtherfromourbelow-consensus-0.2%for2024.ThecontrastbetweenGermanyandtheUSatthemomentisstark. ButwithUSgrowthsurprisingontheupside,thereremainsignsofinflationpersistence.3-monthcoreCPIisrunningat4.0%onanannualisedbasis,whichhasledinvestorstopushbackthetimingofratecutsfromtheFed.BycontrastinEurope,underlyingpricepressuresappearweaker,andoureconomistsexpecttheECBtocutratesatthemeeting-after-nextinApril.CouldwehavetheFedbattlingwithstickyinflationthisyear,justasEuropeandChinaareseekingtocombatmoredisinflationaryforces?Thatwouldhavecurrencyimplications,andourFXstrategistsremainbullishontheDollarversustheEuro. Otherwise,bothdomesticpoliticsandgeopoliticsremaininfocus,particularlygiventhenumberofelectionsthisyear.ThisweekmarkstwoyearssinceRussiainvadedUkraine,andtherearefewsignsthattheendisinsight.Themarketimplicationshavebeendilutedovertimeasenergypriceshavesubsided,butthegeopoliticalconsequencesremainsignificant.Andelsewhere,thedisruptiontocommercialshippingintheRedSeahasonceagaindemonstratedthevulnerabilityofglobalsupplychains.Lookingforward,thisweek’sannouncementthatUrsulavonderLeyenwillrunforasecondtermasEUCommissionPresidentstartsthecountdowntowardstheEuropeanParliamentaryelectionsinJune.AndtheninNovember,wehavetheUSPresidentialelection,wheretherearesignificantdivergencesbetweenthemajorcandidates’views.Beforewereachthesummer,thiselectioncouldbethemajortalkingpointinfinancialmarkets. DavidFolkerts-Landau,GroupChiefEconomist TheviewsinthispublicationareinformedbyDeutscheBank’sGlobalStrategyGroup,whichadvisesmanagementandclientsonbroadmarketrisksandglobaleconomicandfinancialdevelopments.Theviewsandforecastsofthegroup,whichconsistsofseniorresearchstaff,mayoccasionallydifferfromthosedisseminatedbytheirresearchcolleagues. TableofContents Introduction Globalgrowth05 KeyRisk#1:Inflationcontinuestoprovepersistent06 KeyRisk#2:Increasedvulnerabilitiesforsupplychains07 KeyRisk#3:Elevatedgeopoliticalrisks08 KeyTheme#1:AIremainsaforceofchange09 KeyTheme#2:Ayearofelections10 MacroEventsCalendar11 Macro Summaryofmacroviews13 CentralBanks14 FederalReserve15 ECB16 UnitedStates17 EuroArea18 Germany19 UnitedKingdom20 China21 Markets Summaryofmarketviews23 Equitiesupdate25 Ratesupdate26 FXUpdate27 Creditupdate28 Oilupdate29 DeutscheBankResearch|thehouseview@list.db.com|http://houseview.research.db.com|TheHouseViewFebruary20244 View Rationale Risks Weexpectglobalgrowthtorunat2.9%in2024and3.2%in2025. –Inflationmayhavepeaked,butupsiderisksremainaspricepressurespersist.–Economicgrowthinkeycountrieshasprovenstrongerthanexpected,andwenolongerexpectarecessionintheUSandtheEU. o-Asharpergrowthdeteriorationthanexpected,andriskoffundingaccidents. o-Inflationpersistentwithupsiderisks. o-SupplychainsvulnerableastensionsbetweentheUSandChinasimmer,andriskspersistinUkraine,theMiddleEast andfrom2024elections. US Softlandingisnowthebaselinewiththeeconomyexpectedtoremainresilientin2024. –Outperformedin2023.Easierfinancialconditions,improvementinforwardlookingindicatorsandsentimentsuggestperformanceshouldcontinuein2024.–Labourmarketdatahasbeenrobustbutcomingintobetterbalance,supportingsturdyconsumerspendingwhileallowingforasmallerimpulsetoinflation.–Inflationhassoftenedmaterially,withcorePCEbelowtargetinH22023.Near-terminflationmayfirmsome