The year ended on a positive note as global aggressive monetary policy proved successful in taming inflation, gradually easing closer towards central banks’ targets. Global inflation weakened to 3.4% YoY in October, according to Fitch estimates, declining from 3.9% in September. While inflation is expected to resurge in 2024 due to the current hike in oil prices globally, its impact on inflation may be short-lived.
The U.S., Europe, and the UK have reported lower inflation figures during Q4 2023. The core CPI annual inflation rate in the UK reached 5.6% in October 2023, the lowest rate since January 2023. CPI in the U.S. reached 3.1% YoY in November, down from 3.2% in October. Meanwhile, in the Euro Area, CPI is expected to reach 2.4 % in November, down from 2.9 % in October 2023. Hence, we are seeing less aggressive monetary tightening globally. The U.S., the ECB, and the BOE held deposit rates in their last three consecutive meetings at 5.5%, 5.25%, and 4%, respectively, and all are expected to start an expansionary monetary policy next year.
Despite aggressive tightening, most major economies were successful in protecting economic growth, whereby some countries, including the US, Europe, and China, have even expanded rather than falling into the recession whirlpool. Global GDP growth is expected at 2.9% in 2023, followed by a mild slowdown to 2.7% in 2024 and a slight improvement to 3.0% in 2025. Asia is expected to be the highest contributor to global growth in 2024-25, as it has in 2023.
Gold (XAUUSD)
During 2023, gold achieved its strongest annual close ever, in addition to recording a new historical record near $2,150 per ounce. This took place after the Federal Reserve indicated that the cycle of raising interest rates was nearing its end. Markets now expect a cut in interest rates by around 75 basis points in 2024, leading to a decline in the U.S. dollar and positively impacting gold prices.
Several factors affected gold in 2023, including tensions in the Middle East region, as gold is widely considered a safe haven during geopolitical tensions and economic crises. Fears of a hard landing and subsequent global economic recession also helped to propel gold prices in 2023.
From a technical perspective (Figure 1), the attached chart shows the importance of the $2080 per ounce level. Gold tried to exceed this point several times, but it has not succeeded so far to close above those levels. Therefore, gold is currently trying to target and achieve stability above the $2080 per ounce level, which we will continue to monitor. If gold prices successfully remain stable above this level, analysts expect further bullish moves toward new historical levels.
Figure 1: XAUUSD, Weekly, MetaTrader, CFI
Brent Oil
Oil production in the U.S. is growing more expected. In 2024, countries that are not part of OPEC+ will once again be the main reason for global oil production to increase, with a projected rise of 1.2 million barrels per day, after OPEC+ decided to cut production further.
Several factors affected oil prices in 2023, such as reduced OPEC+ production, as well as tensions in the Middle East, which indicated fears of declining demand. Finally, high-interest rates and the rise of the dollar had a direct impact on price movements, with prices falling by -10.5%. In simple terms, the price of oil has been going down and it continued to go down in early December 2023. This happened because the OPEC+ meeting failed to halt the price rout. The price of Brent is now about $25 lower than it was in September 2023. Oil market reaction turned bearish in November and early December 2023 as non-OPEC+ supply strength overlapped with slowing global oil demand growth.
The way that oil is being produced and traded around the world is changing. Instead of getting most of their oil from key producers’ countries in the Middle East, countries like the United States and others in the Atlantic Basin are producing more oil. China is also using a lot of oil for its industries. This is having a big impact on how oil is traded globally. Countries in the eastern part of the world have already taken in a lot of oil from Russia and Iran, but now they have to adjust to getting more oil from the Atlantic Basin. The continued rise in output and slowing demand growth will complicate efforts by key producers to defend their market share and maintain elevated oil prices.
US Indices
After a catastrophic 2022, markets rebounded in 2023, with the Dow Jones increasing 13%, the Nasdaq 100 climbing more than 52%, and the S&P 500 rising more than 24%. All indexes are now almost at all-time highs.
A strong economy, modest inflation, and a potential peak in interest rates helped investors overcome their fears of a potential recession and return to the equity market. Investors' primary concern at the moment is whether the strong market rally will continue until 2024 or if a recession and the accompanying collapse of the stock market are imminent.
Although the majority of the market's gains in 2023 have come from the so-called Magnificent Seven mega-cap tech firms, many Wall Street strategists anticipate that the bottom 493 stocks in the S&P 500 will take up some of the slack in 2024.
Figure 2: Annual Performance of the Most Important Financial Instruments 2023
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