With
the global economy weakening, you may wonder what will impact capital markets
in the second half of 2023. Will the U.S. Federal Reserve stop raising rates?
What factors will influence dollar and gold prices? What will be the key themes
of the year ahead? Several vital stories in the remainder of 2023 are worth
considering when investing in global markets.
Fed is expected to slow or pause rate
hikes in the remaining 2023
The
Fed has raised interest rates eleven times since March 2022 to control runaway
inflation, raising its key lending rate in July to the highest level in 22
years. This caused a decline in the U.S. stock market, a rise in Treasury
yields, a banking crisis, and a strengthening of the U.S. dollar.
In
the first half of September, U.S. Federal Reserve officials said the U.S.
central bank can afford to sit tight for now but do not rule out the
possibility of another rate hike to fight inflation. According to the CME FedWatch Tool, the probability of a pause at the upcoming FOMC
meetings is high, with a 93% probability of holding at the end of the September
2023 meeting and a 58% probability of pause at the end of the December 2023
FOMC meeting.
Investors
should keep in mind that business cycles usually outpace economic cycles.
Therefore, if a pause is announced at the September FOMC meeting on 19 – 20
September, the U.S. dollar will likely weaken, and stock market prices will
rise.
Early onset of U.S. presidential
election mania
The
next 60th presidential election is scheduled for 5 November 2024. On 15
November 2022, Donald Trump announced the launch of his campaign. On 25 April
2023, incumbent U.S. President Joe Biden announced his candidacy.
Suppose
we superficially characterise the two sides of the upcoming election. In that
case, it comes out that Donald Trump and the Republicans are committed to
traditional values, including being in favour of lowering the tax burden and
doing away with non-performing subsidies. At the same time, Joe Biden and the
Democrats welcome immigration, equality, and increasing the tax burden on the
rich.
Both
candidates have already launched their campaigns, meaning the number of
political commentaries will increase even before the primary elections in early
2024. In the current situation, the Republicans’ preponderance of votes is
perceived as a positive signal for the markets—stock market growth. At the same
time, the preponderance of votes favouring the Democrats is perceived as a
negative signal—strengthening of the U.S. dollar. Investors should listen to
the early signs coming from the U.S. media regarding the presidential election
and adjust their investment strategy depending on the emerging early signals.
India’s wedding season could accelerate
the gold price
Seasonality
strongly influences gold performance throughout the year, particularly with
major consumers in India and China who use it for cultural and religious
purposes. The period from November to February is a particularly favourable
time for the precious metal, which falls in the middle of the wedding season in
India. More than half of all gold demand in India is for weddings, which
require a massive amount of jewellery, and gold is often seen as a sign of
wealth and status among Indians.
With
the U.S. Federal Reserve signalling a pause in key rate hikes, the effect of
the wedding season could be synergistic—rising demand for gold against a weak
dollar will boost gold prices from November 2023 onwards.
Conclusion
We
live in an unstable economic and political environment of challenge and
turmoil. However, amidst the challenges, there are opportunities for those
investors who keep their finger on the pulse of the action. From September 2023
onwards, there will be many opportunities, starting with the U.S. Federal
Reserve’s interest rate decision and the wedding season in India. If you want
to know more, read the rest of the article in part two.
About OctaFX
OctaFX is an international broker that has been providing
online trading services worldwide since 2011. It offers commission-free access
to financial markets and various services already utilised by clients from 180
countries with more than 42 million trading accounts. Free educational
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OctaFX
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