Time flies, and the new year has arrived before you know it. 2023 can be regarded as the last "good weather" season. Although there are some topics and events interspersed, the mainstream financial assets fluctuate and operate within a relatively reasonable range. So for 2024, will there be any new changes or concerns worth making some preparations in advance?
Monetary policy
There is no doubt that the impact of the monetary policy of the global central bank headed by the Federal Reserve on the financial market cannot be ignored at any time.
In the past two years, speculation and fine-tuning around the pace and peak of the Fed's rate hike have obviously affected the progress of most markets. In the new year, this bottle will be filled with new wine: will it cut interest rates? When will we cut interest rates?
According to the latest statement of the Federal Reserve at the end of last year, the FED's interest rate cut may come earlier and faster than the mainstream market speculation. If this logic finally falls to the ground, then in the foreign exchange market, the varieties that cut interest rates later will naturally go out of the market that rises first and then falls. In risky assets, the lower interest rate environment is definitely a favorable factor.
Of course, all this is not certain and uncertain. Judging from the current financial data, it is still very possible to cut interest rates after the second quarter. If the expectation is further postponed to the end of 2024, it may lead to short-term "counter-bite effect". For traders, keep a close eye on inflation in major economies and choose relatively strong assets according to the pace of easing.
Geopolitics
From Russia and Ukraine to Palestine and Israel, geopolitics also has short-and medium-term behaviors that interfere with the market from time to time. According to these two experiences, it is less likely that there will be complete safety all year round, but also less likely that there will be a larger level of conflict. Therefore, the staged risk aversion and the logical change of supply and demand of corresponding assets are still the main directions in 2024.
Regionally, Europe and the Middle East are still the two most important variable points. Besides, the possible changes in Asia cannot be completely ignored, but on the whole, we don't think there will be a particularly influential political topic.
Economic Recovery Topic and Black Swan
On the economic trajectory, it turns out that most economists, like us, rely mainly on guessing and cannot accurately predict the development direction. At the beginning of 2023, the main focus is whether and when there will be an economic recession in the United States. However, leading indicators such as upside-down US bond yields did not trigger a real recession.
In 2024, under the loose background and relatively stable environment, the possibility of a big economic recession seems relatively low. But we can't forget the sudden arrival of American banking topic in the first quarter of last year. Many risks that are not recognized at present are not nonexistent, but are not revealed. This is often called a black swan, but only a black swan with real energy and scale can hit the market hard. These can't be predicted and prepared in advance.
Other possibilities
In addition to the above three directions, will there be non-mainstream topics to lead the market changes? Of course, there is such a possibility.
For example, public health in 2019/2020 is also a very big event. But like black swans, we can't see how to deal with them reasonably until they really appear. Therefore, there is no need to worry too much about changes and risks. Whenever there is fluctuation, there will be opportunities for financial markets to make waves.
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