RPT-MARCH-2023 defied all predictions, rate cut planned for 2024

* “Tech” giants ruled the markets in 2023

* Bond markets experienced high volatility

* A slight drop in the dollar; The yen, yuan and emerging currencies suffered

* 2024 elections in countries representing 60% of global GDP

*

by Marc Jones

LONDON, Dec 22 (Reuters) – The year coming to a close could be considered one of the most unusual ever seen in financial markets, mainly because everything seems to have turned out well despite much turbulence and many predictions that turned out to be wrong.

MSCI’s world stock market index is up nearly 20% at this stage despite massive interest rate hikes by major central banks, a mini-crisis in the banking sector that led to UBS’s buyout of Credit Suisse and a shakeup in US regional banks.

In bond markets just a few months ago, investors expected the Fed and other central banks to raise rates further or leave them at high levels for an extended period as an economic recession loomed.

Bond markets have now been betting on a fall in borrowing costs since the end of October, believing that the fight against inflation is on the way.

Other assets in the market have experienced significant fluctuations that are difficult to explain. For example, bitcoin is up more than 150% year-to-date, while emerging market bonds have seen triple-digit gains and the “magnificent seven” (tech giants) have seen their stock prices rise 99%. last year.

“If they had told me at the beginning of the year that we would have a regional banking crisis in the United States and that Credit Suisse would cease to exist, I’m not sure we would have imagined that we would have a year where ‘We live off risk assets,'” said Andrew Balls, PIMCO managing director responsible for bond markets.

190% GROWTH FOR META AND 240% FOR NVIDIA BY 2023

This year’s results show a return of 3.5% to 6.5% for major government bonds and a $10 trillion gain for stocks grouped in global indexes.

Stocks like Meta Platforms and Tesla have soared 190% and 105% for the year at this point, respectively. The Nasdaq is on the verge of posting its best year in twenty years. The artificial intelligence (AI) craze has boosted companies like Nvidia, whose shares are up 240% year-to-date, allowing the semiconductor maker to join the club of more than $1 trillion worth of companies on the stock market.

But this rise in the stock market was not without its pitfalls. In March, the collapse of Silicon Valley Bank (SVB), a mid-sized US bank, and the bailout of 167-year-old Credit Suisse sent stocks around the world plummeting, losing all of the 10% gains made in January.

A fall in safe-haven assets then pushed gold up 7%, while US and European government bond yields posted their biggest monthly decline since the 2008 financial crisis.

The continued rise in interest rates around the world kept investors on edge throughout the summer, and in October, Hamas attacks in Israel heightened geopolitical tensions.

BACK TO THE EARLY BEGINNING OF THE AMERICAN 10 YEARS

In the foreign exchange market, the dollar has fallen about 1% since the start of the year, a barely perceptible decline, while the safe-haven Swiss franc has gained 7.5%. Japan’s apparent reluctance to raise interest rates and China’s faltering economy have seen the yen down 9% and the yuan down 3.5% at this point in the year.

As is often the case, the big movements in currencies have taken place mainly in emerging markets, with the Turkish lira down 35% year-to-date, while the Egyptian currency has devalued 20%. %, the Nigerian currency by 45% and the Argentine peso by half its value since the ultra-liberal Javier Milea came to power.

On the upside, the Colombian and Mexican currencies strengthened by 23% and 14%, respectively. The Polish zloty rose 11%, while the Brazilian real rose 8.5%.

“Once the dollar starts to fall, there could be a lot of fuel for that (volatility) to continue,” DoubleLine’s Bill Campbell predicts, citing possible dollar weakness and questions about the implications of a possible Donald’s return to power. Trump in the United States.

The year is well on its way to a close with the 10-year U.S. Treasury yield nearly level with where it began 2023, though it peaked at 5% in October.

According to Bank of America (BofA) calculations, central banks around the world have raised interest rates a total of about 125 times this year, while cutting only 60 times.

Including the previous 18 months, total increases rose to 510, compared with just over 1,370 declines since the global financial crash in 2008. BofA estimates that declines will dominate next year, with a total of about 150 declines compared to only 40 expected increases.

“Everybody expects a soft landing, everybody expects bond yields to fall, and everybody expects the Fed to cut rates,” summed up Elyas Galou, a strategist at BofA, citing a survey of investors.

ELECTION FEVER Japan’s Nikkei index jumped 17% in dollar terms and 27% in yen terms, making it the best annual performance in a decade at this stage.

China’s key property market continued to weigh on the world’s second-largest economy, impacting oil, which is currently down nearly 8% year-to-date. Safe-haven gold jumped 11.5% for the year.

Other notable assets include bonds from El Salvador, a country at risk of default whose government bond yields are up 114% year over year.

The easing of US sanctions allowed Venezuela’s bonds to rise by 150% and those of Pakistan and Sri Lanka by 97% and 71% respectively.

On the political level, the coming year will be marked by more than 50 major elections, notably in the United States, Taiwan, India, Mexico, Russia, and probably the United Kingdom. Voters in these countries represent 80% of the world’s stock market capitalization and 60% of global GDP.

In Taiwan, elections will begin on January 13, and a few days later in New Hampshire there will be primaries for the 2024 US presidential election.

Other major events in 2024 include the Fed’s first rate cut, which markets expect on March 20, while OPEC and G7 meetings are scheduled for June.

“This is the era of boom and bust,” Elyas Galou said, adding, “We’re not out of the woods.”

(Reporting by Marc Jones, French version by Claude Chendjou, editing by Blandine Hénault)

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