Take 5: An outstanding "everything" rally

 Take 5: An outstanding "everything" rally

This coming week, keep an eye on the markets of Amanda Cooper in London, Mark Jones, Naomi Rovnik, and Kevin Buckland in Tokyo, as well as Lewis Krauskopf in New York.

Following the Fed's announcement that its campaign of interest rate rises was coming to an end and that cuts may occur next year, investors are hoping that a major U.S. inflation measure would lessen pressure on consumer prices.

The Federal Reserve's hint that it may lower interest rates in 2024 has caused global markets to hit year-end "buy everything" highs, driving up equities and gold prices.

In the meanwhile, the Bank of Japan could eventually announce that its very loose monetary policy is ending. Investing in 2024 may not be without its challenges.

This coming week, keep an eye on the markets of Amanda Cooper in London, Mark Jones, Naomi Rovnik, and Kevin Buckland in Tokyo, as well as Lewis Krauskopf in New York.

1. A shift in role

While the Fed and others concentrate on when to lower rates, there is much conjecture that the Bank of Japan (BOJ) may soon exit negative interest rates, returning to its position as the world's foremost institution.

Although it is unclear that changes would occur right away after Tuesday's policy decision, the BOJ may use next week's meeting to set the stage for tightening when it meets again in January.

The yen has risen back to a firmer level of 141 per dollar for the first time since July thanks to the anticipated turn around and the Fed's dovish attitude.

It is ironic that a political controversy involving alleged payments may provide a barrier to stopping the easing, given that Prime Minister Fumio Kishida has removed pro-stimulus members from his Cabinet.

Although the momentum of the yen's gain might be detrimental, a reversal of the politically unpopular yen's weakness could aid his dwindling popularity ratings. This month, the majority of major stock indexes have outperformed the Nikkei.

2 Is inflation declining?

Following the Fed's announcement that its campaign of interest rate rises was coming to an end and that cuts may occur next year, investors are hoping that a major U.S. inflation measure would lessen pressure on consumer prices.

One of the last significant data points of the year will be the Fed's tracking of the personal consumption expenditures (PCE) price index for November, which is released on December 22. According to Fed Chairman Jerome Powell, talk of rate reduction is becoming more prevalent and the record tightening of monetary policy is probably coming to an end.

There will also be data on consumer confidence soon, as investors try to predict how rising interest rates would affect consumer purchasing. When 2024 approaches, one of the most important market topics is whether the Fed can provide a gentle landing for the US economy.

3/Gold Star

Due to the declining value of the US dollar and the expectation that inflation and interest rates would continue to trend downward through 2024, gold is expected to climb for the first time annually since 2020.

Interest-free gold does better in a dropping real rate environment after accounting for inflation.

Since the beginning of 2022, real US 10-year rates have been growing gradually; nevertheless, they did not become positive until June, which caused gold to retrace from almost record highs. Even if they are at their highest point in eight years, getting gold beyond $2,000 an ounce is still possible. Nevertheless, the price is still almost 20% less than its all-time peak of little over $2,500 in 1980, adjusted for inflation.

A rate decrease is anticipated by investors for next year, and with political and economic unpredictability on the rise, this might be a favorable time for gold investors.

4. A Nation With Inflation

More than twice as much inflation in Britain is occurring as the Bank of England's (BoE) 2% objective. In comparison to other major economies, pricing pressures in the UK may still be high, as shown by the most recent statistics for December 20.

This month, the steep decrease in inflation in the euro zone gave rise to expectations that the BOE would lower rates more slowly than the European Central Bank, which helped push the pound to a three-month high versus the euro.

However, increasing rates may also cause the UK economy to enter a recession, which the BoE predicts would end in 2024, so supporting sterling strength is not a sure thing. The BOE's decision to stick with its present course of reacting to inflation or to adopt a longer-term view that weakening economic conditions would drive down prices and incomes will determine the future of the pound.

5/Below the Nile River Official confirmation of Egyptian President Abdel Fattah al-Sisi's third straight election victory is anticipated on Monday. The former military has won with minimal resistance, but he still has a long list of obstacles to overcome.

Egypt is experiencing an economic crisis due to past-due borrowings and near-record inflation; as a result, the country's debt interest payments now account for about half of government income, while the conflict in Gaza rages next door.

According to economists, this cannot continue. In 2024, at least $42.26 billion—$4.89 billion from the International Monetary Fund—will become due.

Election Following the first phase, a significant currency depreciation is inevitable. In relation to the US dollar, the Egyptian pound has already dropped by half since March 2022. On the illicit market, one dollar now trades for around 49 Egyptian pounds, compared to the official rate of 31 pounds. The same is said by the FX forward markets.