Adam Kansler, president, S&P Global Market Intelligence shares an insightful analysis of the global markets. His insights focus on investor sentiment as well as key developments in Europe, China and the United States.
Economy Middle East: The S&P 2024 Capital Markets Outlook paints a rather depressing picture for global equity issuance. What needs to happen for this to turn around?
Adam Kansler: Interest rate hikes and the outlook for rates have really influenced all activity in capital markets. Equity issuance is no different.
Higher rates impacted equity issuance activity across the board in 2022, and activity remained low in 2023. The aggregate amount of global equity issued has come in below $101 billion in each of the last eight quarters through the end of the third quarter of 2023. That is less than half of what was issued in each quarter of 2021.
While equity valuations recovered in 2023, particularly in the U.S., which is responsible for the bulk of global equity issuance, transaction activity remained under pressure. Stock markets have recovered, and volatility has been low, which is normally a favorable backdrop for equity issuance. But the deals just haven’t occurred because investors remained risk averse with focus on the prospect of a recession.
However, issuance activity could rebound in 2024. With short-term rates likely at their peak in the U.S., issuers could be more active in 2024.
Some 70 percent of investors surveyed in the October edition of S&P Global’s Investment Manager Index said their investment appetite would either increase or strongly increase if the federal funds rate stabilized. The broader markets have rallied since the Fed signaled in December that it could pivot to lower rates in the second half of 2024.
Economy Middle East: As you mentioned, 70 percent of investors surveyed in S&P Global’s Investment Manager Index in October said their investment appetite would either increase or strongly increase if the federal funds rate stabilized. Is this likely to happen? What factors will influence a favorable outcome?
Adam Kansler: We’ve already seen a major shift in sentiment on the back of the Fed signaling its intention to cut rates in 2024, with equity markets rising sharply late last year and bond yields lowering. The 10-year T-note yield has now fallen from near 5 percent in late October to around 3.9 percent. The S&P 500 has risen close to 4,800, challenging record highs as measures of implied market volatility plunged. S&P Global Market Intelligence’s latest forecast is for the Fed to start cutting rates from March this year, with 100 basis points of cuts expected in total. This is somewhat less than markets’ current pricing.
Our estimate of U.S. real GDP growth for 2023 remained unrevised at 2.4 percent but revised up its forecast for 2024 from 1.5 percent to 1.7 percent, and for 2025 from 1.3 percent to 1.5 percent. The revisions reflect the stimulative effects of a sharp easing of financial conditions after the Federal Open Market Committee’s December meeting during which the committee began discussing rate cuts in 2024.
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Economy Middle East: The deteriorating growth outlook for the eurozone and the faltering recovery in mainland China are getting people concerned about 2024. Are there any bright spots that we can look forward to?
Adam Kansler: Our forecast for the eurozone – ahead of consensus – remains for mild recessionary conditions to continue in early 2024. Annual growth is forecast at around 0.5 percent only for 2024. Positives include the moderation in underlying inflation. This will support household real incomes and consumer spending, and the expectation of rate cuts from mid-year. We estimate that the ECB has likely reached the end of its tightening cycle. And we expect the start of the loosening cycle during the second quarter of 2024. Unemployment has also remained unusually low despite the economic downturn. We expect a gradual pick-up in quarter over quarter rates of real GDP growth over the course of this year.
China’s economy is forecast to recover rather gradually in 2024. We expect annual real GDP growth to land in the mid-4 percent range, a little below 2023’s estimated growth rate of around 5.4 percent. For China’s 2024 growth, our current specific forecast is 4.7 percent.
The Chinese economy is facing various cyclical and structural challenges. These include problems in the real estate sector and high levels of corporate debt. However, we expect growth this year to be supported by a more accommodative policy, a gradual improvement of private sector confidence, and an expected bottoming out of the housing market downturn. Policy stimulus is the pivotal aspect really, and the government has markedly stepped up its fiscal support in recent months. This is sending a strong signal of its determination to support the economic recovery.
Economy Middle East: Looking at the Middle East, geopolitical tensions have obviously had an impact on economic growth. Do you see light at the end of the tunnel? What’s your take on continued crude production cuts?
Adam Kansler: S&P Global Market Intelligence’s baseline scenario from mid-December has the MENA region growing by 2.3 percent in 2024 and 2.7 percent in 2025 after a more subdued 1.5 percent in 2023. This amid expectations of continued non-oil and gas economic activity growth and a less troubled geopolitical backdrop. Our analysts found that private sector growth in the Gulf Cooperation Council countries could benefit from an anticipated easing of monetary policy terms in the U.S. in 2024. The oil sector of GCC economies is stagnating as we anticipate production cuts to be maintained throughout 2024 (even in 2025). This is due to soft global oil demand growth and strong non-OPEC supply.
The ongoing Israel-Hamas war will likely have a limited economic impact on the broader MENA region. Egypt, Jordan and Lebanon, bordering Israel and the Palestinian territories, will feel the pinch of the war through more adverse sentiment and reduced hospitality, trade and investment flows. Egypt has suffered from temporarily reduced gas flows out of Israel. This has hindered its ability to re-export it and generate much-needed hard currency. It is also adversely impacted by reduced Suez Canal revenues following shipping majors’ decision to re-route container vessels away from the Red Sea due to increased risks of attack. The war has compounded Egypt’s foreign liquidity issues. However, we expect Gulf monarchy support and an IMF deal to hold and help meet Egypt’s significant external financing needs.
Disclaimer
S&P Global Market Intelligence’s opinions, quotes, and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendation to purchase, hold or sell any securities, or to make any investment decisions, and do not address the suitability of any security. S&P Global Market Intelligence is one of five Division’s within S&P Global. It does not represent the views of Commodity Insights, Ratings, Dow Jones Indices or Mobility.
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