Economic review
2024: a promising start Stock exchanges around the world got off to a flying start in the first months of the year. How does this affect the fund returns in the Employee Pension? And what is the outlook for the coming period? In this Investment Update, we look both backwards and forwards.
Q1, particularly good for stocks
The first quarter of 2024 was an especially positive period for stocks. With a quarterly return of more than 10%, global equity markets had an excellent quarter, and also the best first quarter since 2019. The US stock market was the clear leader, with a quarterly return of 12.5%. European and developed Asian equities underperformed, although investors in Europe (+7.6%) and Asia (+7.0%) also have little cause for complaint. Within Asia, the Japanese stock market was the standout winner, with a quarterly return of 15% for the Nikkei index (in euro terms). Emerging market investors had less reason to cheer, with a quarterly return of 4.4%. This was mainly due to the subdued performance from Chinese stocks, however other emerging equity markets in the region (including South Korea, Indonesia and Thailand) and in Latin America (Brazil, Mexico) also underperformed. In March, it was particularly striking that European equities caught up with US stocks, although the differences in return in euro terms were not that great (3.9% on a monthly basis for Europe and 3.6% for North America respectively).
And a little less positive for bonds
Bond investors were not that pleased with the first quarter of 2024. Investors in European government bonds in particular suffered from rising yields, as a result of which European government bonds produced a negative quarterly return of - 0.6%, despite a recovery in March (+ 1.0%). The rise in yields also affected corporate bonds. Thanks to narrowing credit spreads, corporate bonds still delivered positive quarterly returns of 0.5% for European investment grade corporates and 1.5% for more risky high yield corporates.
Inflation developments
After a period of relative stability and even falling inflation in some regions, inflation trended upward again in Q1 worldwide, driven mainly by rising wages and higher commodity prices. Inflation pressure stabilised at around 2.5-3% year-on-year in the eurozone and 3-3.5% in the US. This is significantly higher than the respective inflation targets set by of the European Central Bank (ECB) and the Federal Reserve System (Fed). A major reason for this stabilisation at a higher level is the steady increase in prices for services. In both the euro area and in the US, wage increases were due to tight labour market conditions. While this does not yet constitute a wage-price spiral, it is contributing to inflationary pressure stabilising at a high level. Higher commodity prices are an additional contributing factor. The price of oil has risen by about 15% since the beginning of 2024, and other commodities are also in an uptrend, albeit with some variation. The broader CRB commodities index is up about 10% this year. This is largely due to higher agricultural prices, with cocoa being the most extreme example, rising 135% since the beginning of 2024. A sustained rise in inflation could hurt purchasing power and increase pressure on central banks to adjust their monetary policy.