Author: IntaCapital Swiss

 2023 Closes with Global Equities Charting Big Gains

As the financial curtain came down, marking the end of 2023, a heart-stopping rally in the last two months of the year showed global stock markets with strong annual gains due to investors betting on the fact that major central banks have finally stopped their monetary tightening policies and will indeed cut interest rates 2024. The MSCI World Index* has, since late October 2023, surged by 16%, and, with a flurry of late trading on the 29th of December, showed an annual gain of 22% . This was reflected in recent data showing that in western economies inflation is falling faster than expected, which, as mentioned above, dramatically changed the perception of interest rate changes. Indeed, Jerome Powell, Chairman of the Federal Reserve, fanned the flames of an equity rally in December by announcing that borrowing cost may have peaked.

*MSCI World Index – This is a stock index maintained by Morgan Stanley International (MSCI) and is designed to track broad global equity-market performance. This index is composed of stocks belonging to circa 3.000 companies from 23 developed countries and 25 emerging markets. 

The rise in global equities as reflected in the MSCI World Index is the best run on an annual basis since 2019, when a similar run reflected a 25% gain. The S&P 500 finished the year up by circa 24% which was mainly due to a massive rally in megacap tech stocks.  European markets, after a lacklustre 2022, posted positive gains in 2023 with Italy’s FTSE MIB charting gains of circa 30% and Germany’s DAX coming in with an impressive 20% increase. The overall increase for European equities was reflected on the STOXX 600* charting a gain of 12.6%. Elsewhere all three indexes in Japan posted hefty gains in 2023 with the Nikkei Stock average finishing the year up 28%, this being the best rally since 2013 which reflected a rise of 57%. 

*STOXX 600  Index – This index tracks 600 of the largest stock exchange listed companies from 17 countries in Europe. The countries represented are Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The big omission from the global rally in stock markets is China, where the world’s second largest economy has suffered from problems in their property sector. As a result, the expected recovery has faltered. Indeed, China’s CSI 300, which measures the largest companies listed in Shenzhen and Shanghai, fell by 11.38%. Their flagship financial centre, Hong Kong, has suffered over the years and in 2023 stocks were particularly hard hit, with experts advising the Hang Seng index is the worst performer of 2023. 

Sadly, in the United Kingdom the FTSE lagged behind their counterparts in the United States and Europe by posting a gain of 4% in 2023. Experts suggest that this is down to a stubborn inflation rate, energy companies that are oil-price exposed, and a preponderance of mining companies that are overexposed to and rely on a slowing Chinese economy.

Many expert strategists seem to be sitting on the fence when calling the outlook for 2024. This year will determine the fate of the political leadership for half the global economy, the final battle against inflation and the fate of the current business cycle. The IMF (International Monetary Fund) has issued figures for world growth in 2024 as 2.9% with investors being excited as the IMF issued growth figures for the Asia Pacific region as 4.2%. Specifically in Singapore, Vietnam and Taiwan, analysts suggest these countries could outperform in 2024 due to the potential upswing in global tech, as they have a high concentration of manufacturing and R&D facilities. All in all many experts are suggesting a wait and see policy, as we see how the US/China relationship unfolds, the on-going ramifications of the Russia/Ukraine war, where interest rates stand in June this year, and whether or not the USA economy enjoys a soft landing.

 Final Call for Interest Rates Going into the New Year

On Thursday 14th December 2023 at the final MPC (Monetary Policy Committee) of the year, after a vote of six to three, the Bank of England maintained the status quo and left interest rates unchanged holding steady at a 15 year high of 5.25%. However, the rhetoric remains unchanged as the Governor Mr Andrew Bailey advised “There is still a long way to go in the fight to control inflation”. 

The governor further acknowledged that despite financial markets expectations, he pushed back against an expected rate cut in May 2024, as the MPC warned they may tighten monetary policy if price pressures persist. The MPC were quick to point out that the two key indicators of price pressure which are service and pay inflation remain elevated, and the United Kingdom remains the only major economy where food price increases remain in double digits, with the UK’s inflation figure of 4.7% being the highest of the G7 countries.

Across the Atlantic Ocean in the United States, on Wednesday 13th December 2023 the Federal reserve once again left interest rates unchanged. However, the Chairman Jerome Powell confirmed that the FOMC (Federal Open Market Committee) is still prepared to resume monetary tightening policies and increase interest rates should price pressures return. 

At the same time, in a more dovish stance,  the Federal Reserve leaned towards reversing their interest rate hike policies, by issuing forecasts that showed a number of rate cuts would be likely in 2024. However market experts pointed out that in November, increases in service-sector costs and in particular housing has kept inflation stubborn enough to counter any Federal Reserve interest rate cuts in the near future.

In Europe, the ECB (European Central Bank), along with their counterparts in the United Kingdom and the United States, kept interest rates on hold for the second meeting in succession. The deposit rate remains at a record high of 4%, even though inflation is heading south. The ECB confirmed that keeping interest rates high will make a substantial contribution to returning consumer price growth to the goal of 2% and they further advised that they will increase the speed of its exit from the pandemic era of stimulus which cost them Euros1.7 Trillion. 

The ECB will also increase the speed at which they are ending reinvestments under PEPP bond buying programme*, putting monetary policy tools into a tightening mode. Financial markets are expecting an interest rate cut in March 2024 despite Christine Lagardem, the ECB’s governors’, comments that policy rates will remain at sufficiently restrictive levels for as long as necessary. Markets noted with interest the wording “inflation is expected to remain high for too long” had disappeared from central bank rhetoric and was replaced with “inflation will gradually decline over the course of the next year”.

*PEPP Bond-Buying Programme – Otherwise known as the Pandemic Emergency Purchase Programme was an ECB instigated response to the Covid-19 crisis. Initiated on the 20th March 2020, it is a temporary asset purchase programme of public and private sector securities. These purchases cover sovereign debt, covered bonds (an investment debt comprising of loans that are backed by a separate group of assets), asset-backed securities and commercial paper. 

Elsewhere and outside of the major central banks, Norway increased interest rates for what is expected to be the final time with Russia also raising their cost of borrowing. Meanwhile, Mexico, Pakistan, the Philippines, Switzerland and Taiwan all maintained the status quo by keeping interest rates unchanged whilst Brazil, Peru and Ukraine all cut their borrowing rates. 

At the end of 2023, whilst the Federal Reserve, the Bank of England and the ECB all kept interest rates unchanged, it appears that the Bank of England will have a different policy to the other two central banks going forward in 2024. Whilst the ECB remains hawkish with an exit from the pandemic stimulus, there is still an anticipation of an interest rate cut in March of next year. The Federal Reserve has been more forthcoming issuing forecasts of interest rate cuts in 2024, with the most hawkish of them all being the Bank of England who are sticking by their statement that interest rates will remain high for as long as deemed necessary. However, recent data showing the UK GDP results being worse than expected may push the Bank of England into reassessing their monetary policy for 2024 forcing them into a small interest rate cut.

A Happy New Year to Farsley Celtic FC

All of us at IntaCapital Swiss SA would like to wish the players, the management, the backroom staff and all those connected with Farsley Celtic a Very Happy and Successful New Year. Whilst 2023 has brought mixed results there have been some memorable wins, and though only 15th in the table, the Celts are only nine points off 4th place, which shows that the National League North is a highly competitive division. We are confident we shall see the Celts climb the table in 2024 and to this end wish the players and management the best of luck.