Monthly letter September 2024

KEY EVENTS

The most relevant news in September came from central banks and geopolitics, with a particular focus on conflicts and the approaching U.S. presidential election. The confrontation between the two U.S. presidential candidates remains heated. In their only televised debate, it was confirmed that neither has a chance to gain a clear advantage over the other.

Harris and Trump reiterated that they have different views on both their nation’s future and its role on the global chessboard. Tensions are rising for both the current war conflicts. In Ukraine, one would think that the parties would be trying to gain the best possible position ahead of possible armistice talks. However, the reality is one of contenders continuing to throw gasoline on the fire of military activities. In the Middle East, there has been a heavy resurgence of warfare operations.

The center of the conflict has shifted to Lebanon, with neither side making any secret of the fact that they are solely aiming to achieve their objectives at any cost, believing that they can implement any strategy without any worries for the humanitarian situation and the stability of a region that is fundamental to balances that go far beyond its borders.

“We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.” (12.09.24, Ch. Lagarde, President of the ECB)

Central bank meetings, after the summer break, maintained the premise of being major events. First up was the ECB: markets took note of the expected interest rate cut (25bps) and focused more on the message inherent to the future.

The institution chose not to provide a clear message about the future monetary policy direction. The negative economic news, particularly from the German economy (i.e. auto sectors), did not derail the equity markets; on the contrary, it raised expectations that the ECB might cut rates at its next meeting scheduled for Oct. 17.

The Fed surprised with a 5obps interest rate cut (most expectations were for 25 bps). Chairman Powell had the not-so- obvious merit of convincing markets that a move of unusual magnitude is permitted by current conditions and is not dictated by concern about any noticeable deterioration in the economy. The Swiss National Bank (recall it is the only one that meets on a quarterly basis) confirmed expectations of a 25bps cut. Economists commented on the decision, speaking of a move aimed primarily at calming the strength of the CHF as requested by the business community.

The Bank of Japan confirmed itself as the only one among the major institutions to pursue a restrictive policy, again a stance widely expected by markets.

At the end of the month, the Chinese government adopted unprecedented massive fiscal measures to support the
economy, and the central bank acted in the same manner from a monetary perspective. These are uncommon decisions for
the second largest global economy and therefore not really expected by economists.

PROSPECTS

We enter the period marked by the release of quarterly corporate results and the run-up to the US presidential election with an uneven situation across asset classes. In many cases we are already firmly discounting the success of central banks in avoiding a heavy recession; in others, however, the message conveyed by market performance is decidedly more somber.

Thus, the main attentions will remain focused on the release of macroeconomic data and signals from the Fed and ECB. We have seen, between July and August, how unexpected events can create severe turbulence. At those junctures, it has been critically important to have investments capable of dampening volatility and instruments that allow us to react nimbly.

For many months now, war conflicts seem to have weighed relatively lightly on the development of most financial markets, a situation, however, that is colliding with a steadily worsening reality. With only a few weeks to go before the U.S. general elections, it remains difficult to predict what scenarios (presidency and parliament) will characterize the next legislature.

November 5 will be a crucial date, but it is not certain that there will be immediately clear visibility on the direction of the most important nation in terms of economic development and geopolitical influence. Finally, it is interesting to note that 2024 is being characterized by a development of financial markets between late summer and early fall in sharp contrast to the typical seasonality of this period.