Basel-based J. Safra Sarasin has tripled its forecast of US interest rate cuts for 2024, though it does not expect an immediate economic recession.
J. Safra Sarasin forecasts three Fed rate cuts by 25 basis points this year, instead of just one, according to a note authored by chief economist Karsten Junius in response to the recent market selloff.
«[W]e do not expect an immediate US recession or an emergency rate cut by the Fed before the September meeting,» he commented, adding that the bank predicts three rate cuts by the European Central Bank and Bank of England as well as one cut by the Swiss National Bank in the second half of the year.
Market Misinterpretation
On the selloff itself, Junius said that recent market turbulence highlighted that macro risks are shifting from inflation to growth, carry trades are vulnerable to sharp reversals and earnings expectations from artificial intelligence have their limits. Still, he believes that excessive pessimism is not warranted.
«However, we note that spillovers to the service sector are more moderate than in previous cycles,» Junius said. «We are also convinced that markets have interpreted the latest US labor market report far too negatively.»
Investment Calls
In terms of investments, the bank is forecasting bond yields to fall further over the next 6 to 12 months and favors intermediate maturities with a neutral stance on credit across investment grade and high yield for the time being. On FX, it expects the yen to push higher as the yield gap to other currencies gets narrower.
And on equities, it retains a defensive stance «given the persistent uncertainty around the economic cycle as various indicators imply that the current slowdown has room to run».
