According to Wall Street News, Bank of America analyst Benjamin Bowler believes that looking forward to 2024, under the festive appearance of U.S. stocks, there are still turbulent undercurrents, and the global market may face nine "black swan" events next year: including the resurgence of inflation, overly optimistic expectations for the economy, the lag of high interest rate shocks, junk bond maturity tide, the U.S. economic recession, the bursting of the technology stock bubble, geopolitical conflicts, sovereign debt risks and zero-date options liquidation.
So, which of these nine "black swan" events are most likely to occur and what impact do they have on us?
Risk 1: The Fed ended its tightening too soon and inflation returned
Recently, the Fed's monetary policy stance has undergone a 180-degree shift, clearly suggesting that the United States will cut interest rates next year. At present, the U.S. monetary policy market expects the Federal Reserve to cut interest rates seven times in 2024, and the U.S. federal ** interest rate will increase from the current 525%-5.5% to 3 by the end of 20245 %-3 .75%。
Since the beginning of 2022, the main reason for the US dollar** has been the Federal Reserve's 11 consecutive interest rate hikes, with the US dollar index rising from 93** at the beginning of 2022 to 114After the recent high of 78, it began to fall back to around 101 at present, and the recent decline of the US dollar has accelerated significantly due to the rising expectations of interest rate cuts.
As the U.S. officially begins to cut interest rates. There is room for further growth in the US dollar, which is generally negatively correlated with commodities, so the US dollar will be bullish for commodities.
At the same time, due to global climate variability and rising geopolitical risks in the Middle East, it will lead to international agricultural products and *** In this case, there is a possibility of a global resurgence of inflation in the future.
Risk 2: Overly optimistic that the U.S. economy can return to pre-pandemic levels
The U.S. economy has grown in recent years in large part due to the $8 trillion stimulus introduced during the pandemic, as the impact of these stimulus measures fades. Future growth in the United States will come under pressure. As a result, the IMF and other institutions have lowered their economic growth forecasts for the United States next year.
Risk 3: The lag of the high interest rate shock, the impact of the Fed's interest rate hike has not really fermented
The continued interest rate hikes in the United States have triggered a series of *** and hurt itself, which is the main reason why the United States is preparing to cut interest rates quickly and continuously. As the U.S. enters a cycle of interest rate cuts, the associated negative impacts and shocks will abate.
Risk 4: Higher interest rates ripple through the junk bond market. The increase in interest expenses may have a spillover effect and lead to a reduction in corporate capital expenditure, while the peak of junk bond maturity may also trigger a wave of defaults
The continued interest rate hikes in the United States have triggered a series of *** and hurt itself, which is the main reason why the United States is preparing to cut interest rates quickly. The U.S. needs to cut interest rates quickly, lower financing costs, and lower bond market yields, thereby reducing U.S. Treasuries, corporate bonds, and commercial real estate risks.
Risk 5: The U.S. is in recession
Recently, Bill Ackerman, the founder of Pershing Square Asset Management, said that the Federal Reserve will cut interest rates as early as the first quarter of next year, otherwise it will face the risk of a "hard landing". According to the report, Ackman said that he has seen evidence of the weakness of the U.S. economy and that he does not believe that the U.S. economy will go to a so-called "soft landing."
In August, Bill Ackman publicly stated that he would short the 30-year U.S. Treasury bond, and the 30-year Treasury yield climbed to 55% could happen very quickly. Subsequently, there was a historic increase in U.S. Treasury bonds, Bloomberg said that since March 2020, U.S. Treasury bonds with a maturity of 10 years or more have been **46%, and Ackman has made a lot of money from it. In addition, Bill Ackman has a proven track record of significant investment returns in his investment career.
As the impact of the $8 trillion economic stimulus introduced by the United States during the epidemic gradually fades, institutions such as Bill Ackerman and Goldman Sachs are not optimistic about the US economy next year, and believe that the United States will continue to cut interest rates to stabilize financial markets and promote economic growth.
Risk 6: The bubble bursts in U.S. tech stocks
At present, the U.S. financial asset bubble is at an all-time high, and the valuation of U.S. stocks is also at a high level, among the world's major economies, the U.S. and India** markets have the highest valuations, and the valuations of U.S. technology stocks are generally more than double that of similar Chinese companies.
In this case, the adjustment pressure on U.S. technology stocks has increased, which is one of the important reasons why the U.S. plans to cut interest rates continuously in the future to maintain and push up the bubble in the U.S. ** market.
Risk 7: Geopolitical conflict risk
In the coming year, the risk of potential global geopolitical conflicts will rise, for example, if the Palestinian-Israeli conflict escalates and spills over, resulting in the disruption of the Middle East, it will lead to a resurgence in global inflation and a serious impact on the global economy.
Risk 8: The sovereign debt crisis of the United States and other countries has resurfaced
Despite its heavy debt, the U.S. national debt is approaching $34 trillion, accounting for about 130% of U.S. GDP. But the U.S. national debt is only about half of Japan's GDP. At the same time, the United States has dollar currency hegemony that Japan does not have. The United States can start the printing press at any time to buy U.S. Treasury bonds and stabilize the U.S. financial markets.
Although, in the medium to long term, US debt risks are accumulating and rising. But in the short term, the risk of a major debt crisis in the United States is relatively low. In the current situation, the United States** and the Federal Reserve still have the ability to stabilize the US financial market.
Risk 9: Zero-date options trigger market volatility, similar to the "volatility apocalypse" that triggered the market crash in February 2018, which could be repeated
The scale of financial derivatives in the United States is huge, and in 2022, the top 25 investment banks in the United States held $247 trillion in derivatives;Among them, the top 5 investment banks hold a total of 201 trillion US dollars in derivatives. At the same time, U.S. financial institutions are using AI models heavily in transactions, and the SEC chairman warned that AI could trigger a financial crisis in the next decade. Both of these factors could trigger wild volatility in the U.S. financial markets.
Overall, the U.S. will face many challenges next year, such as the risk of recession, the rising risk of a debt crisis, and a serious bubble in technology stocks, which is the main reason why the Fed urgently needs to cut interest rates continuously. In addition to the relatively uncontrollable geopolitical risks, the United States** and the Federal Reserve are still capable of dealing with other risks, and the likelihood of a large-scale crisis is low.
In order to cope with the above challenges, the possibility of continuous interest rate cuts in the United States has increased significantly, and the European Central Bank is also likely to join the team of interest rate cuts. At the same time, the central banks of Europe and the United States cut interest rates, and overseas funds will also flow back to emerging market countries, which will help reduce the pressure on China's external environment, and as China will launch more economic stimulus measures in the future, it will help stabilize China's economy.
At the same time, in the past year, the RMB and RMB assets have been under pressure due to the widening of interest rate differentials and capital outflows due to continued interest rate hikes in the United States. As the U.S. enters a cycle of interest rate cuts, it will be positive for the RMB and RMB assets, and the RMB and RMB assets have the opportunity to continue to appear**.