Connect with us

Economic

What Will Move Markets in 2023 by Investing.com

Avatar

Published

on


© Reuters

By Geoffrey Smith

Investing.com – First the good news: 2022, a nightmare year for both stocks and bonds, is coming to an end. Now the bad news: While 2023 is likely to be better, it won’t look like that for a while. At least not until the major disconnect between central banks and markets over inflation expectations is resolved. And at least not until China has enough herd immunity to return to work and play after the COVID-19 wave. The test of strength in Ukraine between Russia and the West is another matter that is likely to get worse before it gets better. Whether any or all of that is enough to draw the world’s gaze to Elon Musk’s wealth is another matter. Here’s what you need to know in the financial markets in 2023.

1. Central Banks and Markets Confront About Inflation/Recession

Without a doubt, the general theme for the market next year will be the battle between central banks and inflation.

Advertisement

Recent events – taken at face value – have greatly increased the risk that the Federal Reserve and European Central Bank will push the world’s two largest economic blocs into a tailspin. Recession By raising interest rates further.

The Fed’s ‘dot chart’ showed a clear majority of policymakers support raising the upper limit of the Fed funds target to as much as 5.4% next year, while European Central Bank President Christine Lagarde threatened up to 150 basis points of tightening from Frankfurt over the next four months.

The problem is that the markets believe that both institutions are either deceitful or simply have not considered such rhetoric. Short-term interest rate futures point to expectations that the Federal Reserve will even start cutting interest rates in the second half of next year as weakness already evident in housing and commodities spreads to the rest of the economy. Similarly, 1-month euro futures suggest the ECB is only good for another 50 basis points before losing its nerve.

This is a disconnect that needs to be sorted out in the first few months of next year. US stocks in particular are still priced at 18 times forward earnings and therefore have no negative valuation protection if a looming recession materializes.

From today’s perspective, the key variables seem to be how well the US and European workforces can offset some of the inflation losses with big wage increases, and how quickly the oil market will tighten as Chinese demand returns. Both questions are still really open at the moment.

Advertisement

2. The year of the second Russian war

The balance of risks to the global economy has become inextricably stuck as the Russian invasion of Ukraine progresses. If it continues, all kinds of tail risks will remain, from the collapse of Russia’s oil supplies to – God forbid – the use of nuclear weapons. However, if some kind of path to peace is found, normalizing food and energy supplies could have a dramatic effect on business and consumer sentiment globally.

The war is against Russia, and it is hard to see what would change that, if the West continued to support Ukraine. Neither the United States, France, Germany or Italy face a national election this year, which could help keep that front united. However, the economic price of this support is also on the rise. Europe in particular is heading into recession quickly, and while it may get through this winter without Russian energy supplies, the cost of replenishing empty gas stocks when spring comes could be too high for much of Europe’s industry to defend its presence in the world. markets.

Putin also does not face elections. Its biggest dangers are mutiny by a military that has already lost more soldiers than the Soviet Union has lost in a decade in Afghanistan (according to unverified Ukrainian estimates), and popular protest as the death toll – and inflation rate – rises steadily. The greater risk to global markets, however, is what follows such events: Hard-liners like Yevgeny Prigozhin, who runs Wagner’s mercenary force, are more likely to stage a concerted power grab than a fragmented anti-war opposition — and are also more likely to wield that power. in interrupted form. In all respects, the war is likely to get worse before it gets better.

3. Reopening China is risky

Advertisement

It gets worse before things get better, a theme that extends to the world’s other economic powerhouse, China.

While the fate of wars is inherently unpredictable, predicting the progression of a deadly virus is usually much easier. China’s communist leaders, alarmed at the first sign of protest against their party, threw caution to the wind and effectively let COVID-19 blow. Herd immunity and the release of animal spirits by Chinese consumers should follow, but only after a wave of infections and deaths unlike anything seen so far in the three years since the virus first emerged in Wuhan.

Over the past two years, strict public health regulations have been the main reason behind China’s anemic growth. But next year, with regulations largely lifted, the main factor will instead be fear of a virus for which Chinese medicine still has only partially effective treatments. Fear may remain within manageable limits as long as China’s health system is not overburdened, and recent reports of dramatic increases in emergency capacity suggest that authorities are at least trying to get ahead of the curve. However, if cases outgrow the system’s capacity, deaths will soar and the behavior of China’s consumers and industrial workforce — like those crowding cheeks in Apple’s iPhone city of Zhengzhou — will become unstable to the extreme.

Here too, as with points 1. and 2., the balance of risks is in a precarious first half of the year, albeit with the potential for a strong rebound in the second half if Beijing’s calculated gamble pays off.

4. Crypto breakdown

Advertisement

Speaking of gambling, 2023 is shaping up to be the year when cryptocurrency luck runs out. A 12-month period of governance scandals, culminating in the horrific collapse of FTX and the arrest of its founder Sam Bankman-Fred, has eroded trust so badly that an even larger implosion could be enough to bring the entire asset class to an end.

There’s no shortage of candidates, but highlighting two “too big to fail” names would be particularly intense. Both Binance – the world’s largest exchange – and Tether, which operates the world’s most valuable stablecoin network, have failed to dispel doubts about the adequacy of their reserves and the legitimacy of their business models in recent months.

Events in December set an ominous tone for the months ahead: Mazars, the law and auditing firm hired by Binance to ‘certify’ the quality of Binance reserves, withdrew its certification last week and suspended all business with crypto firms. Critics also grimly mutter about evidence that Binance’s US operations are no better protected than FTX. And don’t even mention the Justice Department’s investigation into suspected money laundering on behalf of Iran and others — which is likely to come to a close next year.

5. Mars will look more attractive

If there is one man on the planet big enough to be the subject of global markets in 2023, it is Elon Musk. This column believes Musk will not be CEO of Twitter or Tesla (NASDAQ:) within 12 months.

Advertisement

Predicting Twitter is not difficult. Musk himself polled his Twitter followers about whether he should step down. Almost 60% said “yes”.

In effect, all this does is create an atmosphere that misleads the agency about a decision its creditors have already taken. Morgan Stanley (NYSE:) and others are sitting on billions of dollars in bonds they signed up to buy Musk’s Twitter, which they can’t sell right now. That debt, along with the billions more spent financing a leveraged buyout of the software company Citrix, is fueling the entire M&A market and leveraged loan market that is essential to Wall Street’s profits. The quickest way to clear the blockage is for the banks to take control of Twitter, take Musk out and put Plan B into action, whatever that may be.

Musk’s control of the Tesla is also slipping. After the recent $3.6 billion stock sale, his stake in the automaker has fallen to 13.4%, not close enough to warrant control. For comparison, Henry Ford’s descendants still own 40% of Ford’s voting shares, while Ferdinand Porsche controls 53% of Volkswagen’s shares.

This wouldn’t be a problem if 2023 was lining up to be a stellar year for the auto industry, and Tesla shares were priced realistically. But it is not, and it is not. Tesla has already had to cut prices in the United States and China, its two largest markets, and there are signs of a looming catastrophe in the US auto finance market next year that could accelerate a nationwide price decline. Despite dropping more than 50% this year, Tesla stock still trades at more than 53 times trailing earnings, and those earnings won’t survive significant downturns in the US, Europe, and China – for reasons discussed above – they’re very possible. It might jump, it might get pushed, but our guess is that one way or another, Musk will have found a way to spend more time at SpaceX by the time we write the preview for 2024.

Source link

Advertisement

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published.

Economic

We need to pay more attention to skewed economic signals

Avatar

Published

on

By

The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

Advertisement

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

Advertisement

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

Advertisement

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

Source link

Advertisement
Continue Reading

Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

Avatar

Published

on

By


© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Advertisement

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

Advertisement

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

Source link

Advertisement

Continue Reading

Economic

German automakers point to easing supply chain problems

Avatar

Published

on

By

Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

Advertisement

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Advertisement

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

Source link

Advertisement

Continue Reading
Advertisement

Trending