The decisive question for the markets in the Q4 will be the pace of interest rate cuts

The third quarter was characterized by a fall in interest rate expectations in the US and also in the eurozone. This was driven by a slowdown in the US labor market and a eurozone economy that continued to disappoint. The decisive question for the markets in the fourth quarter will be the pace of interest rate cuts. In addition, the US elections certainly pose a risk, as does a possible escalation of the wars in Ukraine and the Middle East. However, we anticipate a predominantly positive trend on the markets.

Economy

We expect growth in the eurozone to remain weak for the time being. The further deterioration in sentiment in industry in particular points in this direction in the short term. For 2025, we forecast a slight increase in growth momentum, as higher real household income and interest rate cuts should have a positive impact. By contrast, the US economy should slow down from a solid level, as the labor market will continue to weaken and thus reduce income growth. The already low savings rate is another factor pointing to weaker momentum in consumer spending. In both economic areas, the decreasing price pressure should be further confirmed.

Bonds

The ECB should cut interest rates by 25 basis points in October, which should be followed by a further rate cut of the same magnitude in December. We expect yields on German government bonds to rise, as we are forecasting a slight economic recovery in the eurozone. The market is currently pricing in a persistently weak economy. For the USA, we are forecasting two further interest rate cuts of 25 bp each by the end of the year. The long end of the US yield curve should remain in a volatile sideways trend, as the expectation of a soft landing for the US economy in the coming months will not change much and is already largely priced in. We see the greatest risk for a rise in yields in Donald Trump's election victory.

Currencies

A narrowing interest rate differential between the eurozone and the US suggests a further slight weakening of the dollar. However, Donald Trump's election victory also poses a risk here. We continue to take a positive view of gold, even if the strong performance of the third quarter should not be repeated. We expect the Swiss franc to weaken slightly in the fourth quarter.

Equities

Earnings growth for the companies in the global index should accelerate to +12.2% next year after +6.1% this year. All sectors should achieve profit increases, whereby the main component of growth in the overall index should be the profit increases of the large technology groups. These are benefiting from the strong demand for AI products and applications. Furthermore, stocks from the industrials, consumer staples and healthcare sectors, to name just the most important, are also attractively valued. We expect the global equity market index to perform positively in the fourth quarter.

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