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    RESEARCH  |  3 POINT PERSPECTIVE  |  MACRO SHIFTS

    Q3 2024 Global Outlook: Calm on the surface

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    Contributors: Ajay Rajadhyaksha & Amrut Nashikkar
    20 Jun 2024

    This is still a supportive environment for risk assets, thanks in large part to continued US outperformance. But there are plenty of concerning developments below the surface. Our Research analysts say that investors should enjoy the quiet while it lasts, but with a wary eye on “tail” scenarios.

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    1. A solid macro backdrop is underpinned by steady global growth

    China is having a weak Q2 after a strong first quarter and the second half of the year should also be disappointing, with growth below 4% (q/q seasonally adjusted annual rate). On the other hand, the euro area is finally seeing a cyclical recovery after two years of stagnation. India has been an outperformer for a couple of years and looks set to grow at around 7% in 2024 as well.

    However, one of the biggest reasons for a solid macro backdrop continues to be the world’s largest economy, the United States. Jobs growth is trending at levels similar to the past year, and so are domestic final sales. Granted, there is some evidence that lower-end consumers are feeling a pinch, and small businesses have been gloomy for a while. But there has also been a massive expansion in household wealth since the start of COVID, in both equities and home prices. Moreover, the US tech sector continues to spend aggressively on its machine learning and AI build-out. We expect the US to expand 2.5% this year, right in line with 2023.

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    2. There is no room for complacency

    Persistent worries about the US fiscal situation, concerns from the rest of the world that the Fed is keeping rates too high for too long, Chinese manufacturing overcapacity – all of these are legitimate worries. Trade frictions are rising, with both the US and EU imposing new tariffs on China. French political risks have risen sharply and are likely to stay high. Election results in Mexico, India and South Africa have already caused upheavals in local markets.

    Our Research analysts’ baseline expectation is that none of these developments – or others our analysts might be missing – will knock the global economy off course. But it is concerning that, with equities making new highs virtually every week, investors seem blasé about downside risks. Nowhere is this more apparent than in the options markets, with implied volatility low in most major asset classes.

    3. Tail hedges look sensible

    This leaves our Research analysts in an uncomfortable position when it comes to asset allocation. They see little upside in core fixed income, given a solid growth outlook, rising fiscal deficits in many economies, and an expectation that the “last mile” of disinflation will be slow and bumpy. Nor do our analysts find equities compelling, after the massive rally from last October’s lows.

    Our Research analysts feel that the path of least resistance is still for equities to grind out positive returns, and so find themselves overweight stocks over bonds for yet another quarter. But this time around, our analysts recommend that investors use low levels of volatility in equities and foreign exchange markets to buy protection from low-probability events.

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    About the experts

    Ajay Rajadhyaksha

    Global Chairman of Research

    Ajay Rajadhyaksha is Global Chairman of Research at Barclays, based in New York. He drives the global macro research and strategy effort, including economics, rates, FX, commodities, emerging markets, and asset allocation. Since joining Barclays in 2005, Ajay has held various positions, including Head of Macro Research, Co-Head of FICC Research and, before that, Head of US Fixed Income Research and US and European Securitised Research.

    Amrut Nashikkar

    Managing Director, Fixed Income Strategy

    Amrut Nashikkar is a Managing Director in the Fixed Income Strategy team at Barclays based in New York, covering interest rate derivatives with a focus on interest rate volatility and the Libor transition. Amrut joined Barclays in 2008 from Lehman Brothers, where he was an interest rate strategist. Prior to that, he taught at New York University, where he graduated with a PhD in finance. He also holds a management degree from the Indian Institute of Management, Ahmedabad, and an undergraduate degree in engineering from the Indian Institute of Technology, Kharagpur.

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