WATCH: Saxo Bank CIO on global risks, opportunities in 2024

By how much will the US Federal Reserve actually lower rates in 2024? And where will the safe havens be for investors looking to navigate these challenging times?

These are all interesting questions to ask as we kick off the year, and who better to ask about these burning topics than the Chief Investment Officer (CIO) of Saxo Bank, Steen Jakobsen.

At Gulf Business, we had the privilege of hosting Jakobsen at our studios in Dubai while he was on one of his business trips to the UAE.

And in this wide-ranging interview, Jakobsen told us about some of the key risks facing the global economy in 2024. The full interview is posted below but we’ve also published a selected part of the transcript containing his key forecasts for 2024.

What is your forecast for the economic picture in 2024?

In the early parts of 2024, the Federal Reserve will start to indicate that they will cut interest rates.

And the reason for that is simple. As you alluded to, we’ve seen a significant increase in the nominal interest rate, which brought the real rate, which is the difference between the nominal rate and inflation, to a positive 250 basis point, which is unheard of in modern US history. But the problem from a financial standpoint is that if you pay real rates of 2.5 per cent a in a country that has huge amounts of debt ever, expanding financing needs, you end up in a situation where you’re going to bankrupt yourself if you keep those high payments to the investors. So what the Fed needs to contemplate — and that will have a significant impact on interest rates in the US, but also in this region because of the tie up to that monetary policy, of course — is that the Fed is going to argue that if inflation is back in the bottle, so to speak, then we have the ability to cut rates because obviously if inflation is coming down and interest rates remain the same, that real rate will actually expand.

And unlike a lot of people, I don’t really buy into the concept of a soft landing. When you go from excess, which you very well outlined in terms of COVID and the post-pandemic fiscal expansion that we saw, then you normally mitigate that by a cycle downturn.

What are your thoughts on some of the key risks going into 2024?

The most dominant one, of course, remains Japan. This is simply because Japan has sort of a central role in the world in terms of its trade financing. They are the biggest trade financing country in the world. They have increasingly become a geopolitical power as the skirmish and the technology race between the US and China is ramping up.

Of course, Japan is seen as a place where you can produce some of the stuff that you produce in Taiwan. It is a great economy by any means, but it is also an economy loaded with public sector debt and a monetary experiment that is out of this world. Again, going back to my university days, if you told me that one of the richest countries in the world is going to have debt-to-GDP of 220 per cent in the public space, a fixed bond market in terms of prices and a currency rate that is manipulated, I would tell you that you are crazy.

But that is the case and make no mistake, your readers need to know that Japan is a civilised country in every sense of the word, but not in financial terms. It is the only grown-up market in a world where you don’t have price discovery as an economist would say. So, the ability to price money on any part of the yield curve in Japan is a given, but only by one force, and that is the Ministry of Finance and the Bank of Japan, in coordination. So, if you have no price discovery, you are going to end up in a situation where you create a boom and a bust economy. And for us, for you and me, for the local investor, it is important to know why, because Japan is the single biggest investor in overseas bonds.