Monthly letter October 2024

Key events

The geopolitical situation is becoming increasingly tense; however, financial markets remain mostly impassive, continuing to focus on the outlook for cyclical growth, inflation trends and corporate earnings.

Only gold, a traditional safe haven asset, seems to be affected by events. The stationing of North Korean troops in Ukraine and the cross-air raids between Israel and Iran highlight how regional conflicts tend to involve international actors firsthand on an increasingly large scale. Meanwhile, tensions between China and Taiwan have escalated, fueled by a series of military exercises conducted by China near the island.

Geopolitical developments are highlighting the strengthening of some alliances (see Russia with Iran and North Korea) that may also not be particularly welcome to other actors (see China).

Major political events always in October 2024 include the election campaign in the United States, where candidates are intensifying their efforts in the run-up to the elections, and the BRICS meeting in Russia.

The latter focused on strengthening economic relations and possible expansion of the group, with the goal of creating a more global influential bloc. Both events had an impact on the geopolitical environment, with the BRICS exploring economic alternatives to traditional currencies and the United States focused on domestic politics and their influence on the global economy.

“Russian navy ships transferred 1,500 North Korean special operation forces to the port city of Vladivostok between 8 and 13 October.”
(NIS, National Intelligence Service South Korea, 18.10.24)

The committees of the major central banks (with the exception of the ECB and BoJ) had no meetings scheduled for October. Investor attention then focused on the release of economic data.

In the United States, the evolution of the macroeconomic picture surprised with both growth and inflation holding stronger than expected, leading to a change in expectations about future moves by the Fed, whose next meeting is scheduled for Nov. 7.

In contrast, the European economy appears less robust, and the ECB responded by cutting rates by 25 basis points.

On this occasion President Lagarde declared confidence that inflation would return to the ECB objective.

The Bank of Japan has not made any surprising decisions. The Chinese government has continued with measures to support economic growth. By the end of September there had been the first moves in this direction, and investors had reacted with momentum; by contrast, in the following weeks they were more cautious.

PROSPECTS

Right now, investors globally are focused almost exclusively on the U.S. election.

In recent weeks, attention has focused in particular on the publication of a number of polls, including Polymarket’s, which show a clear Trump advantage over Harris. Thus, a more domestically oriented government is expected, with possible inflationary effects from a pro- business approach and the imposition of tariffs. An increase in the cost of living could, in other words, lead to a rise in interest rates, thus promoting the attractiveness of the dollar and a historically favorable environment for gold.

It is important to note that a few days after the Nov. 5 election the regular Fed meeting (on the 7th) will be held, for which expectations have evolved significantly.

The initial question “Will there be another 50bps cut in interest rates?” has given way to “Will there be no cut?” Although the prevailing view remains for a 25bps cut, this change underscores how careful investors will be about whether the Fed’s priorities will remain to “first support the economy, then control inflation” or whether the committee led by J. Powell will have to take note of a changed reality.

As the end of the year approaches, many managers focus primarily on preserving the performance achieved and preparing portfolios for 2025.

This often leads to lower volumes and encourages the so-called year-end rally.