In 2023, central banks faced challenges with inflation, leading to a series of interest rate increases. As a result, global inflation has dropped from around 10% in mid-2022 to below 5% currently.
Octa, an international provider of online trading services, notes that higher interest rates have put pressure on higher asset returns, which has had a dampening effect on the global economy.
Looking ahead to 2024, it will be an election year with heightened geopolitical tensions in the US and several other countries, including India. The effectiveness of the Federal Reserve in guiding the US economy to a stable state is still being assessed, and there remains a possibility of a global recession.
Octa has analyzed key factors and developed two possible scenarios for market behavior. The baseline scenario is optimistic, with a resumption of global growth. The non-baseline scenario, deemed negative, considers the realization of economic and geopolitical risks identified by analysts.
In the positive scenario, macroeconomic indicators continue to improve, leading to a significant drop in inflation and potential rate cuts by central banks. Under this scenario, defensive assets like gold and Bitcoin may outperform fixed income and equities in the first half of 2024, given the uncertainty in the market.
The US economy plays a central role in global financial markets, but developments in the rest of the world should not be overlooked. As macroeconomic indicators improve, there may be a moderate recovery in manufacturing activity in Europe and improvements in the UK labor market.
In the negative scenario, even with inflation stabilizing, the economy struggles to sustain excessive interest rate increases. This results in negative impacts on bond yields and various segments of the financial market. Cost-cutting measures by corporations could lead to declining consumer spending, rising unemployment rates, and increased credit and mortgage delinquencies.
By September 2024, central banks may resort to quantitative easing to support corporations and the labor market. Geopolitical tensions are also expected to persist, further contributing to the destabilization of the global economy.
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