2023-2024 Market Trends: Interest Rates, Energy Transition, and US-Сhinа Tensions

<p>Identifying market trends helps people invest with
profit and achieve their financial goals. In 2023-2024, the market trends will
be influenced by three high-level factors: U.S. interest rates, growing
regional competition, and the new energy balance. The OctaFX experts have
analysed their possible impact on the world economy.</p><p>U.S. interest rates are a
litmus test of the world economy</p><p>One thing that affects global financial
markets is the U.S. economy controlled by the U.S. Federal Reserve (Fed). If
the U.S. economy is fine, the dollar weakens, and global capital markets rise.
The Fed controls the global economy by changing the key rate, which leads to
periods of growth or decline called economic cycles. According to the study by
Alan S. Blinder, an average cycle lasts six years and consists of three
periods:</p><ul><li>a period of
interest rates hikes</li><li>a period of
falling rates</li><li>a period of
steady rates.</li></ul><p>Now the U.S. economy is in a tightening cycle: the Fed
started aggressively raising interest rates in March 2022—for the first time
since the 1980-s. This might end either with the global growth of stock markets
or at least another year of depression and a strengthening dollar. </p><p>The
macroeconomic indicators indicate the second option to be more likely: in 2022,
the U.S. inflation reached a 40-year high, and analysts still see the effects
of the pandemic and an armed conflict in Ukraine. The IMF, the World Bank, and
the WTO agree—the global economy might well end in a recession. </p><p>The further Fed's interest rate decision will affect
the global economy, including global inflation, GDP growth, and unemployment
data. Now, for the first time in the last 14 months, the Fed has paused its
interest rate hikes. If the rates are steady until September, it will be the
end of the tightening cycle. Then, investors will push capital markets to new
highs making the dollar cheap.</p><p>US-China tensions make Asian
capital markets more attractive</p><p>Asia is taking the stage as the world's most important
economy, pushing the U.S. aside. This process started at the beginning of the
2000-s when emerging economies took the lead over developed countries. Over the
past 20 years, Asian countries have doubled their world GDP share, primarily
due to China and India, which have entered the global top 5.</p><p>Asian countries increase their power with deeper
integration in trade, investment, innovation, and knowledge flows. Experts
believe Asia will determine the next stage of globalization. At the same time,
Asia's emergence as a competing force creates a conflict with China on one side
and the U.S. on the other—the two economies are disconnected. This economic
conflict will likely continue in the future.</p><p>Considering that Asian markets are well past the
recessionary phase, investors are optimistic about its stock market. Moreover,
due to the emergence of new currency controls, CNY and INR will tend to strengthen
in the long term. Thus, the U.S. dollar is more attractive for hedging in the
coming quarter, while the CNY is more attractive by the end of the year.</p><p>Natural gas is the bridge fuel
of the world</p><p>The current stage of the economic cycle
is characterised by lower demand for oil and coal. Other energy resources will
benefit from increased demand amid forming a new energy balance.</p><p>As a result of the Ukrainian conflict,
Russia has redirected its oil and gas from Europe to Asian markets. At the same
time, the U.S. has sharply increased its exports of liquefied natural gas to
Europe. These changes in global trade in 2022 have led to an extreme shortage
of energy resources. Consequently, environmental sustainability in energy has
become a secondary factor, while reliability and economic efficiency have once
again taken centre stage. </p><p>The world is going through an energy
transition, with natural gas systematically replacing coal and oil. Coal,
falling in price, will lose its position due to environmental, technological,
and economic reasons. The role of renewables and nuclear power energy sources
might increase in the long term, but gas is the only balancing energy source
that can guarantee peak demand coverage. Growing demand for it will contribute
to its price increase in the 2H 2023 and beyond.</p><p>What’s next?</p><p>The year 2023 is a turning point for the monetary and
financial world. The Fed's future reduction in interest rates will support the
global economy and smooth out the negative effect of economic disconnection
between Asia and developed countries. The following two years will be an era of
a weak dollar and falling oil systematically losing its position to natural
gas.</p><p>About OctaFX</p><p><a href="https://www.octafx.com/?utm_source=media&amp;utm_medium=pr&amp;utm_campaign=MarketFactorsJune&amp;utm_content=ww_fx" target="_blank" rel="follow">OctaFX</a> is an international broker that has
been providing online trading services worldwide since 2011. It offers
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from Global Banking and Finance Review and International Business Magazine,
respectively.</p>

This article was written by FL Contributors at www.forexlive.com.