Author: Tan Yaling, Independent Economist of China Foreign Exchange Investment Research Institute
The difference between the international financial market in December 2023 and previous years is that the U.S. stock market has hit a new high, accompanied by the depreciation of the US dollar to end the three-year appreciation cycle, and the Fed's interest rate cut expectations continue to be noisy, and the outlook for the international financial market is confusing. It is expected that in January 2024, there will be new trends and new rhythms of adjustment in the international financial market, especially in the United States, the intensification of volatility has the possibility of correction, and the reversal of the trend and structural transformation will be the last resort in January, and even premeditated or prepared planned events and situation control may be possible.
OneThe main features are refined
Looking back at the characteristics of the international financial market in December, which is closely related to the U.S. plan, the unconventional operation and extreme emotion are carried out simultaneously, which will leave unpredictable and even reverse-the-extreme extremities in 2024, among which the commodity market with the US dollar and the market layout is the main trend and feature of the future. In 2023, the international financial market will be highly concentrated on the Fed's policy focus and geopolitical risks, among which the strong US economy and ** prosperity will go in the opposite direction of the peak rise of the Fed's monetary policy rate hike, the depreciation of the US dollar, the Fed's interest rate hike and the US stock **, the US economy is strong, and the US interest rate rises in tandem with the US economic fundamentals and corporate profit margins, which not only deviates from the logic of traditional economic theory, but also the special features and advantages of the new economic structure and cycle of the United States. However, in 2023, the trend of the depreciation of the US dollar will form two main lines of international commodities - gold and black two stocks reverse the trend, the depreciation of the US dollar and the price of gold ** and the depreciation of the US dollar and the price of oil ** go their own way, this is or the path and way of the US vertical layout, and the control between the ups and downs is the superior power of the United States.
1. International oil interferes with inflation to create a false appearance. In December, the international oil ** full month ** ranged from 2-3%, of which the New York market international oil ** from 75$59** to $71$32, down 599%；The fluctuation range is 6771-76.$76, amplitude 1197%。London International Petroleum ** from 80$67** to $77$04, down 471%；The interval ** is at 7229-81.$54 with an amplitude of 1151%。In 2023, the synchronization of international oil and dollar depreciation is a rare correlation in history, and the bottom of U.S. oil reserves after the release of U.S. strategic oil in 2022 may be an important year for the U.S. factor to play in the international oil downturn in 2023.
2. The International Association has depreciated from the US dollar. In December, the international *** was the focus, but this was not caused by geopolitical risks, but rather a strategic application and benchmarking of the US dollar asset portfolio. Full month New York *** from 2056$50 rose to 2071$38, up 072%, the overall international *** to maintain more than 2000 US dollars is a super strong feature;The interval ** spans 198790-2152.$30, amplitude 8%. Among them, the depreciation of the US dollar is the key leading and cooperating** driver, but in fact, it is not closely related to geopolitical correlation and panic aversion. Although the Palestinian-Israeli conflict has led to an increase in the risk of the Suez Canal channel in the Red Sea, the VIX panic indicator has remained relatively low at 14%.
3. The depreciation of the US dollar has broken through the benefits of interest rate cuts. The U.S. dollar index fell from 103 in December5135 points down to 1013778 points, depreciation 21%；The interval ** is 1006172-104.2753 points, amplitude 353%。Among them, the 8th regular meeting of the Federal Reserve on December 13 and the last regular meeting of the year will not raise interest rates, which is a key meeting to stimulate the expectation of future interest rate cuts, and it is also the main focus and driver of the depreciation of the US dollar. Especially in the second half of December, the market expects the Fed to further strengthen interest rate cuts, and the support and strength of the US dollar depreciation are the focus of support at the end of the year. At present, the market expects the Fed to cut interest rates by more than 90% in March 2024 and cut interest rates by 100-150 points throughout the year, but I think this is a strategy that is purely hype, and the depreciation of the dollar is more obvious. The depreciation of the US dollar is the focus of speculation in the market's interest rate cut expectations, but in fact, the Fed's interest rate cut is not suitable for the development of the US economy and the development trend, and there is a possibility of US dollar planning and manipulation in the wrong expectations that distort the environment.
The above three characteristics are the focus of the international financial market in December, and then the focus of the US dollar logic on the benchmark commodity - oil and asymmetric operation are the possible variables of the future parameters, which is also the possible base and layout focus of the market trend reversal in January 2024.
Second, the general situation performance
Looking at the trend of the international financial market in December, the basic performance of the market is not only disorderly and free, but also has the implicit strategy of the dollar-led layout.
1. Foreign exchange market - the appreciation of the euro and European currencies stimulates the depreciation of the US dollar and drives commodity currencies to follow. The US dollar** contrasted sharply with the British pound**, which had its best annual performance since 2017, while the Swiss franc recorded its strongest annual performance since 2010. European currencies have been the focus of this month's depreciation of the US dollar, with the euro falling from 1$0886 up to 11037 US dollars, the euro appreciated by 137%；The interval is located at 10723-1.$1139, amplitude 387%。Pound from 1$2622 up to 1At $2,729, the pound appreciated by 084%；The interval is located at 12500-1.$2828, amplitude 26%。Swiss francs from 08,751 Swiss francs up to 08,411 Swiss francs, which appreciated by 404%；The interval is located at 08332-0.8821 Swiss francs with an amplitude of 558%。At the same time, the Canadian dollar also fell from 1$3559 up to $13245 Canadian dollars, the Canadian dollar appreciated by 237%；The interval ** is 13172-1.3619 Canadian dollars, amplitude 33%。Yen from 1481680 yen up to 1409980 yen, the yen appreciated by 509%；The interval ** is 1402440-148.3470 yen, amplitude 547%。Australian dollar from 0$6603 up to 0$6810, the Australian dollar appreciated by 327%；The interval ** is 06525-0.$6871 with an amplitude of 524%。The New Zealand dollar from 0$6153 up to 06323 US dollars, the New Zealand dollar appreciated by 269%；The interval ** is 06084-0.$6369, amplitude 464%。The depreciation of the major basket currencies with the US dollar has a significant effect, which is related to the benchmarking of technical parameters during the year, and the technical cycle factors from the extreme depreciation of the Canadian dollar and the yen to the rapid appreciation are auxiliary principles and logical inevitability. China's RMB onshore is 71340 yuan appreciation of 70978 yuan, appreciation 051%；The interval is located at 70865-7.1882 yuan, amplitude 143%。71382 yuan appreciation 71204 yuan, appreciation 025%；The offshore depreciation remained unchanged, with a range of 70867-7.1997 yuan, amplitude 158%。The foreign exchange market has a strong dominant force, the US dollar dominates and most currencies are passive, and currency competition is still the economic and political axis.
2. ** Market - The super market value of US stocks has reached a new high, driving the world's *** to highlight the economic foundation and the superiority of enterprises. Among them, the U.S. and European stock indexes are beautiful and the emerging markets are consistent with the commonality, but the difference between the prosperity of developed countries and the risk of emerging markets is more individualized, and it is worth paying attention to future risks. U.S. stocks ended the year with a slight decline, but all three major indexes achieved their ninth consecutive week**, with large gains in December and the fourth quarter, as well as in 2023. U.S. stocks finally settled at the Dow at 3768954 points, NASDAQ 1501135 points, S&P 476983 points to end 2023**. December Dow Jones**484%, NASDAQ **552%, S&P**442%。In the fourth quarter, the three major stock indexes rose by more than 10%, and the Dow **1248%, NASDAQ **1356%, S&P**1124%。At the same time, European stock indexes** also followed the US stocks, of which the German stock index stabilized at 16,000 points, the Italian stock index maintained the level of 30,000 points, and the British and French stock indexes** remained. Compared with emerging markets, India's market capitalization exceeded US$4 trillion for the first time, and it competed fiercely with Hong Kong for the world's fourth place. India is one of the fastest-growing of the world's major economies, and the gap between India and Hong Kong is narrowing as it remains one of Asia's most favored markets against the backdrop of global economic uncertainty. India grew 7. YoY in Q3 2023, mainly driven by manufacturing and spending growth6% to become the fastest-growing major economy. The speculative nature of the Indian market, including foreign capital inflows and the country's push for infrastructure development, is key. For emerging markets, overseas investment inflows are one of the main reasons. So far this year, India, with a net $20 billion in overseas investors, has reversed the record divestment of 2022. As a result, the MSCI MSCI benchmark stock index is expected to accumulate **69%, thus ending a two-year losing streak. With the emerging market foreign exchange index is expected to rise by 47%, or the biggest annual increase since 2017, and the emerging market local currency-denominated bond index rose 63%, the market is expected to post its biggest annual gain since 2020, and dollar-denominated bonds are expected to achieve an annual return of 11%, which would be the best in the last 4 years.
3. Interest rate market - the Fed does not raise interest rates, and temporarily tries to stimulate the depreciation of the dollar, but it is not the original intention of interest rate cuts and the future trend is possible. As the Fed's December meeting will not raise interest rates and the previous two (September and November) will cause market interest rate cut expectations to be the main focus in December, but the US dollar benchmark interest rate still stands at the highest point of the basket of currencies in developed countries, which happens to be an important reference indicator for the Fed not to cut interest rates. Because the core of the Fed's interest rate hike is to make up for the shortcomings of the US dollar interest rate hegemony mechanism, not the focus of US inflation relief, on the contrary, the current US housing**, wage level and services*** may not be eliminated. Therefore, the Fed's monetary policy inflation structure composition is upgraded or U.S. inflation may rise again, after all, the oil ** surge controlled by the United States is unavoidable, and the Fed's interest rate hike is still based on more sufficient reasons and arguments for raising interest rates. Investors may be underestimating U.S. inflation risks, as former U.S. Summers put it, arguing that "I'm not pretty sure we're a country with a 2% target inflation rate in the lasting sense." "U.S. wages, strike activity, a tight labor market, geopolitical risks and house prices are all potential inflationary pressures in the U.S., and I can safely say look better and more likely than they were six or eight months ago. "The Fed's interest rate cut expectations have a strategy and purpose, and it is worth being vigilant. In addition, the biggest insecurity or resistance to the Fed's interest rate hike is the high level of the US dollar, and the previous Goldman Sachs statement that the US dollar is overvalued by 18% is the background and parameters of the current speculation about the Fed's interest rate cut expectations. On the other hand, although the two major European central banks, the central banks of the United Kingdom and the eurozone, have not raised interest rates, their statements are not the same as those of the Fed, and a clear future rate hike is still an important factor. The diversification of interest rates in emerging market countries, the difference between no interest rate hikes, interest rate cuts, extreme interest rate hikes and interest rate cuts, and the new trend of internationalization of interest rate market competition will be an important consideration period for the Fed not to cut interest rates easily.
The determination and purpose of the major countries reflected in the main performance of the international financial market are clear and firm, which is the last reference point for the market focus and trend in 2024.
3. Logical background of the cause
The events that had a greater impact on the international financial market in December focused on the worsening of the Palestinian-Israeli conflict, the Federal Reserve's interest rate cut, and the impact of the world's economic and trade failures increased** Uncertainty, especially the impact on 2024 is unpredictable and very uncertain.
Reason 1: The Palestinian-Israeli conflict has spread to the blockage of shipping and the increase in fares. In December, the Palestinian-Israeli conflict spilled over into the Red Sea and extended to Suez and more shipping obstacles intensified, which not only led to the risk of oil exports from the region, but also became a shackle to the Federal Reserve or monetary tightening in developed countries. Up to now, the Red Sea and Suez Canal shipping events have intensified military conflicts and disputes in international relations are the new focus, mainly focusing on the diplomatic strategy confrontation between the United States and Europe's opposition, focusing on the background and logic of the United States' oil control and European oil dependence, perhaps the United States wants to use this to intensify the sharp rise in oil prices. However, Europe wants to ease the war in the oil-producing areas, and does not want the oil factor to once again constrain the European economy and interest rate factors. At present, the Suez Canal situation has been extended to the choice of shipping to the Cape of Good Hope, mainly due to the impact of the Red Sea situation, and more and more shipping options choose to bypass the Cape of Good Hope to continue to advance the flow of goods. At present, the abandonment of the Red Sea-Suez route and the detour to the Cape of Good Hope will inevitably increase the shipping distance and increase the cost, and the freight rates of many European routes and the Mediterranean route** have soared compared with before the escalation of the situation in the Red Sea. This is similar to the **chain disruption since the epidemic in 2020 and the Russia-Ukraine conflict in 2022, and the detour to the Cape of Good Hope will last at least a month, and the cost of sea freight on the Asia-Europe route is not surprising. It is expected that the expansion of the Palestinian-Israeli conflict will bring new variables to the international ** that is improving, and the event will prolong the shipping time and the cost ** will inevitably be a potential support factor for the Federal Reserve to raise interest rates, and the American-style layout will be fully exerted in an important period and cycle. The severity of the current situation is no less than the previous two chain interruptions, which will be a negative factor and a potential suppression for Asia-Europe relations. In particular, the Suez Canal, the Sued Pipeline and the Bab el-Mandeb Strait are the strategic routes for the Persian Gulf oil and gas to Europe and North America, which is very important for the world's oil **, and is also one of the seven international geographical choke points. According to statistics, one-third of the world's seaborne oil passes through the Arabian Sea. In the first half of 2023, total oil shipments through these routes accounted for about 12% of total seaborne oil**, and total liquefied natural gas (LNG) shipments accounted for about 8% of total global LNG**. The magnified goal of the Red Sea crisis is that international oil prices are too high, and the prepared monetary policy of the United States is the background and logic of the current Gulf situation.
Reason 2: The Fed's interest rate cut expectations are more extreme. As the Fed took the last regular meeting in December to take the measure of not raising interest rates again, and then the Fed will not raise interest rates for the third time in 2023, the market will intensify the speculation, but its original intention may be an important means to stimulate the depreciation of the dollar and an opportunity for technical adjustment. On the one hand, the Fed's interest rate cut expectations exceed the actual performance and future expectations of the U.S. economy and **, and there are no reasons and arguments for the objective environment of monetary policy interest rate cuts. On the other hand, in the context of the Fed's 525-point interest rate hike in two years, the U.S. economy is getting stronger and the U.S. stock market is getting higher and higher, which seems to be the focus of the paradox of the Fed's interest rate cut logic. At present, the US stock market has hit a new high and the market value of listed companies in the United States has risen very much in favor of the Fed's interest rate hike, not a reason to cut interest rates, while the US economy grew by 4 in the third quarterThe ultra-strong 9% is due to the fact that the U.S. economy is stable and there is no interest rate cut environment, and the market expects that the Fed's interest rate cut sentiment may not be the intention of the US dollar interest rate, but the US dollar of the exchange rate is high. Therefore, when the Federal Reserve did not raise interest rates for three consecutive times at its 6th regular meeting on September 21, 2023, its 7th regular meeting on November 2, 2023 and its 8th regular meeting on December 14, 2023, the U.S. dollar index was at the level of 105 points, 107 points and 104 points, which was higher than the 103 point level of the U.S. dollar index at the beginning of the year. In fact, the Fed's interest rate still has a higher level of planning and targeting, and the Fed's interest rate cut sentiment is too impatient, or even premature, which is not the real appeal and strategic intention of the Fed's monetary policy.
Reason 3: There is pressure between economic stability** blockage. In December, the global economic environment remained stable, and the worsening of the Gulf conflict has not yet directly impacted the reality, but the future relationship and impact pressure should not be taken lightly. At the end of December, the OECD (Organization for Economic Co-operation and Development) released the latest "Economic Outlook Report", pointing out that the world economic growth rate in 2023 is expected to be 29%, down 01 percentage point. Among them, the growth rate is expected to slow down to 27%, which is expected to reach 30%。OECD stressed that the current world economy is facing a series of risks such as intensifying geopolitical tensions, weak growth, high core inflation and rising financial vulnerabilities, the global economy is still facing greater downward pressure, and the economic growth gap in different regions is widening, of which the growth rate in Asia is higher than that in other regions, the economic growth rate of the United States and Canada is declining, and the euro area is lagging behind the economic growth rate of North America and AsiaIn particular, China and India are likely to be the main engines of global economic growth. The current geopolitical tensions are severely hampered, and the global recovery is slowing down with increasing energy restrictions and global cost lines, rising uncertainty about the outlook. However, the negative impact of the tightening monetary policy of developed countries has exacerbated the vulnerability to the tightening of financial conditions, and the relatively high interest rate environment has increased the risk of emerging market economies. In particular, the economic recovery in Latin America has slowed down, and the economic growth rate of major Latin American economies is expected to be 20%-3.Between 0%, Brazil and Argentina will increase from 18% and -13% to 20% and 19% in Mexico will increase from 2. in 20245% slows to 2. by 20250%。
The vulnerability of unexpected factors and inertia in the international financial market is the shackle or focus of monetary policy, and the new pattern of differentiation, competition and globalization will be the basis, logic and background of the new dynamic variables in 2024.
Fourth, the outlook**
According to the market structure and logic in December, it is expected that the international financial market will face a new choice in January 2024, and the ** parameters left in December 2023 will have target differences and trend basis. Therefore, it is expected that the international financial market will face the risk of the natural law of the three-key selective cycle in January.
Risk 1: International oil ** soaring is possible. Due to the downturn in international oil in 2023, only July to September will be a phase, and its highest point of only $94 is still lower than the $95 released by the U.S. oil strategy in November 2022. Coupled with the current expansion of the Red Sea state and the superposition of cyclical factors on the oil stimulus factors around the oil-producing areas, it is expected that the international oil ** surge in January may not only have the strategic planning intention of resources, but also the natural rebound of the low level of the oil technology cycle, or the normal opportunity and space. More importantly, there is a possibility that the inflation data will rise at the time of the Fed's first regular meeting in 2024, and the inflation data of the U.S. Department of Labor will be released before the Fed's regular meeting, which may be more conducive to the needs of the Fed's monetary policy sustainability indicators, and it is highly likely that the Fed will maintain interest rate stability and not cut interest rates. It is expected that in January, international oil may quickly rush to $90, and there is a possibility of sprinting to $100, and the downturn may change opportunities and conditions.
Risk 2: The depreciation of the US dollar repairs the possibility of appreciation. Due to the rapid progress of the dollar depreciation in December 2023, it is expected that the dollar depreciation in January will have the possibility of convergence after breaking through the 100-point mark, which indicates that the dollar appreciation of 102-103 points is possible, but the time is short, the trend rhythm of the dollar depreciation has been decided, and the probability of dollar depreciation is unchanged. In particular, the environment and economy of the main basket currencies in the periphery are not as good as the conditions for currency appreciation, and the correction of the appreciation of the US dollar is a phased adjustment of last resort.
Risk 3: U.S. stocks** technical correction is possible. Due to the strong momentum and technical advancement time and strength of U.S. stocks in the fourth quarter of 2023, it is expected that the technical period will be repaired in January, and U.S. stocks have risen to a record high. It is expected that the three major U.S. stock indexes** will be dominated by the Dow, which is better than the Nasdaq and the S&P, and the U.S. stock index** will maintain the support of the Dow at 36,000 points, the Nasdaq at 14,000 points and the S&P at 4,700 points. However, the U.S. stock market will continue to advance throughout 2024, and there may still be support and impetus for the three major stock indexes to reach new highs.
It is expected that there is a possibility of adjustment in the volatility of other markets with reference to the US dollar and related data in January.
First of all, the appreciation of commodity currencies in the foreign exchange market is worth paying attention to——It is expected that in January, other currencies due to the adjustment of the US dollar may highlight the appreciation of commodity currencies, including the above oil ** stimulus, European currency economic concerns and currency contradictions will limit the continuation of European currency appreciation, and then the world's major currency fluctuations are mainly depreciated and repaired. It is expected that the probability of RMB appreciation in China is high and the possibility of depreciation is mainly due to the benchmark depreciation of US dollar appreciation and the law of cyclical appreciation is a natural cycle. It is expected that the appreciation of the RMB will return to the level of 6 yuan, 68-6.The volatility of 9 yuan increases and the appreciation tendency is mainly the same, and the depreciation range of 7 yuan gradually decreases.
Secondly, the conversion of the commodity market is particularly importantIt is expected that the probability of international *** 1900 US dollars in January will increase, and the trend will be limited to 2100 US dollars. Among them, the correction of the appreciation of the US dollar is the focus of moderation, and the acceleration of international oil may also be conducive to the drive. At present, the global copper storage capacity is limited, and the relevant information shows that it is only 260,000 tons, which can only meet the global demand for 4 days in the future. It is expected that copper will turn to a more serious ** tension in the second half of 2024, and the ** driven by the contradiction between supply and demand will rise sharply. It is expected that the international copper futures level of 8,000 US dollars per ton may break through and soar to 10,000 US dollars, and speculative sentiment and copper mine geopolitical factors will be the driving and stimulating factors. In particular, the speculation of industrial raw materials and commodity plate combinations will be an important correlation with copper futures, and it is also a related factor and driving force that stimulates or affects international oil.
In the end, the staggered exchange of stocks and bonds is due to the random movement of expected interest ratesIt is expected that the correction of U.S. stocks in January and the appreciation of the U.S. dollar or the upside of U.S. Treasury yields may create an atmosphere conducive to the Fed's interest rate hike. In addition, the U.S. fiscal year is in a special half of the year is a key point, the U.S. Treasury bond yield will be conducive to the U.S. fiscal confidence and the U.S. political climate needs, the rise in U.S. Treasury yields is also conducive to the interest rate choices of developed countries, especially the Japanese bond yields driving factors including the end of the Bank of Japan's negative interest rates, which are the focus of the U.S. dollar bond market and the international correlation. As a result, there is a possibility of changes in the Fed's monetary policy interest rate movements, and expectations are not true guidance. In particular, the inflation level in the new year is not certain to continue to decline unilaterally, and in the future, with the external oil factors, the United States' own housing, wages and services may rise, and the upward trend of inflation in the United States will reappear Inflationary pressure, and the Fed's interest rate cut is just speculation, not the choice of the Fed's policy turn. It is expected that the U.S. 10-year Treasury yield will return to close to 5%, and the inversion of the length of the U.S. Treasury will be the focus of speculation on the U.S. economic stimulus dollar depreciation.
The beginning of January 2024 will be the core reference index and guidance of the whole year, the current situation and environment are relatively complex, and the characteristics of the United States to play the role of technology promotion will be worth paying attention to the roundabout stage, not a trend change, the depreciation of the US dollar remains unchanged, the US stock market remains unchanged, and the US fiscal issuance remains unchanged and monetary tightening is the basic logic and thinking of the US factor.