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In 2024, we anticipate an election year marked by heightened geopolitical tensions, both in the U.S. and around the world. Moreover, the likelihood of Fed guiding the U.S economy to a stable position with interest rates is still under evaluation. Additionally, the possibility of a global recession remains a consideration. Octa has analyzed key factors and deliberated on two potential scenarios for the global financial market developments in 2024.
In 2023, global central banks struggled with inflation, prompting interest rate hikes worldwide. This resulted in a decline in global inflation from approximately 10% in the summer of 2022 to its current level of under 5%. The escalation in interest rates also increased the demand for higher asset returns, posing a challenge to the global economy.
As we enter 2024, we anticipate an election year marked by heightened geopolitical tensions both in the U.S. and around the world. Moreover, the likelihood of Fed guiding the U.S economy to a stable position with interest rates is still under evaluation. We have therefore looked at two possible scenarios for market behavior. The baseline scenario would mark a resumption of global growth, so we consider it positive. The non-basic scenario implies the realization of most economic and geopolitical risks—so it can be called negative.
Baseline scenario—soft landing
The positive scenario assumes a sustained enhancement in macroeconomic indicators, where inflation decreases significantly, prompting central banks to initiate rate cuts. Under this scenario, the U.S. Federal Reserve maintains the key rate unchanged until the June meeting, followed by a systematic reduction. As a consequence, during the initial half of 2024, there is reduced demand for fixed-income equities (including government and other bonds) and equities due to prevailing uncertainty, leading investors to prioritize defensive assets such as gold and bitcoin.
Business cycles are surpassing economic cycles, leading to the commencement of global asset rebalancing in early March. The primary catalyst for investors is anticipated to be the Federal Reserve meeting scheduled for March 19 and 20, featuring a summary of economic projections and insights from corporations during the earnings season.
While the U.S. economy serves as a primary driver for global financial markets, it’s essential to consider events unfolding worldwide. As macroeconomic indicators show signs of improvement, we anticipate a moderate recovery in manufacturing activity across Europe and enhancements in the U.K. labor market. Furthermore, there is a possibility that the Japanese Central Bank may announce its intention to raise the key rate in the latter half of 2024. These developments are likely to coincide with a reduction in geopolitical tensions within areas of military conflict.
According to Kar Yong Ang, Octa’s financial market analyst, traders’ strategies indicate a focus on the upward trends of gold and bitcoin from the beginning of the year until mid-March—prior to the two-day meeting of the U.S. Federal Reserve. Additionally, Ang advises traders to consider selling the U.S. dollar across all major currency pairs from late March to early April 2024.
Non-basic scenario—recession is not excluded
The labor market plays a pivotal role in dictating whether economic conditions shift from a soft to a hard landing. Even as inflation stabilizes, the economy’s inability to sustain excessive interest rate hikes remains evident. This ongoing challenge negatively affects yields on all bond issues, permeating every facet of the financial market. Consequently, corporations are compelled to reduce labor costs, further exacerbating the decline in consumer spending.
In mid-2024, a surge in high-interest rates is expected to drive a significant rise in unemployment, consumer credit, and mortgage delinquencies. This impact will shift from consumers to the corporate sector, affecting macroeconomic indicators, leading to a substantial decline in corporate revenues and an increase in unemployment.
By September 2024, the situation is expected to prompt central banks to resort to Quantitative Easing (QE) to support corporations and the labor market. Simultaneously, the Bank of Japan is likely to maintain its negative interest rate policy, influencing USDJPY dynamics amidst global economic destabilization and persistent geopolitical tensions.
“Due to prevailing high-interest rates, investors are likely to favor defensive assets until September 2024,” notes Kar Yong Ang, Octa’s financial market analyst. “Traders should align their tactics accordingly, betting on stable growth in gold, oil, gas, and bitcoin. However, post-September events introduce heightened uncertainty, as the impact of hypothetical QE measures may not be immediate. Additionally, the conclusion of the U.S. election race adds an extra layer of unpredictability.”
These scenarios follow a consistent trajectory from early 2024 to mid-March, after which market dynamics shift to risk-off or risk-on. Understanding these trends offers potential trading opportunities in 2024.
Octa is a globally recognized brokerage firm offering online trading services since 2011. With commission-free access to financial markets, it serves clients from 180 countries, boasting over 42 million trading accounts. Octa provides free educational webinars, articles, and analytical tools to help clients achieve their investment goals.
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Octa’s commitment to excellence is reflected in its receipt of over 60 awards, including the prestigious ‘Best Educational Broker 2023’ award from Global Forex Awards and the ‘Best Global Broker Asia 2022’ award from International Business Magazine.
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