Economic recession terrifies financial markets in 2023: Will the disaster continue?
Wall Street is worried about corporate profitability in the coming year (Getty)
The current year, which is coming to an end, has been a year of great and worrisome challenges for investors in the money and currency markets, as investors have faced the challenges of Russia’s war against Ukraine, the insane rise in inflation and bank interest rates, and its effects on currency markets in emerging countries, Europe and Japan, the risks of a global economic recession and the collapse of the cryptocurrency market. , along with the Corona pandemic in China, which has affected global supply chains. But will this disastrous situation continue? How do financial and investment experts see the next year 2023? And what are their expectations?
Many international banks suggest that the difficult conditions that international markets have faced this year could continue into next year 2023, although there are some promising signs of falling inflation rates in the United States and possibly in Europe.
As for the US economy, the engine that drives the global economy, JPMorgan expects the Federal Reserve (US central bank) to continue raising interest rates until the first quarter of next year to reach 5%, then stop raising interest rates at the start of the second quarters From 2023 Most of the world’s major central banks are expected to follow the Fed’s lead. However, the US bank expects that the worsening of the Corona pandemic in China and the natural gas crisis in Europe will lead the global economy to enter a recession that may be moderate in the United States but may not be deep in Europe.
In this regard, head of policy and economic research at JP Morgan, Bruce Kasman, says in an analysis published on the bank’s website, that “the global economy is still suffering from supply chain crises and commodity price shocks”. But he “does not see the global economy in immediate danger of slipping into recession in early 2023,” meaning the recession could be delayed until the second half of the year.
On the other hand, Citibank seems more optimistic, believing that pressures on the US economy and fears of entering a deep recession will prompt the Federal Reserve to return to cutting interest rates on the dollar. Bank of America expects, in a report on its website, that the global economy will enter a recessionary cycle next year due to the Federal Reserve’s policy of tightening bank interest rates. He believes that the policy of monetary tightening and raising interest rates will lead to a drop in consumer spending in America by about 5% in the next year, and will also lead to a drop in the income of American companies by 10%. This will have a negative impact on the American financial market, which will force the Federal Reserve to abandon the policy of tightening monetary policy and return to lowering interest rates.
For her part, Janet Moy, an expert at the Royal Bank of Canada, believes that major economies may not be able to avoid entering an economic recession next year, but it will be a moderate recession and may not last long. A long time.
In this sense, she refers to the positive factors supporting this moderate recession and says that the labor market in the large capitalist economies is good and may continue to be so, and there are many jobs available, and the banking sector in these countries enjoys excellent capitalization, and financial markets are not expected to witness a financial crisis and liquidity deficit like the one that hit the world markets in 2008.
As for the future of the Wall Street market, the world’s largest market, expectations for the market’s performance are mixed, as JP Morgan expects the fall in the inflation rate and the end of interest rate hikes on the dollar to lead to a recovery in US asset prices in the second quarter. half of the year, and thus the growth of the index. Standard & Poor’s 500, the main index for measuring the performance of the Wall Street market, at the end of 2023 at 4,200 points.
For its part, Bloomberg believes that the Standard & Poor’s index will end next year at 4009. However, the newsletter “Seeking Alpha” seems pessimistic about the future of US stocks, as it believes that the “Standard & Poor’s 500” index will fall at a sharp rate and the end of 2003 at 2685 points.
As for foreign exchange markets, most currency experts believe that the dollar will maintain its current strength in the coming year, even if the Federal Reserve stops raising interest rates for the US, due to strong demand for the US currency from international companies and countries with high levels of dollar debt. and they want to settle it before the deadline so as not to fall on the list of defaults.
Analysts expect 10-year US Treasury yields to fall to 3.4% by the end of 2023, and real bond yields are expected to decline due to inflation. They rule out the possibility that inflation and the Fed’s interest rate policy will remain top of mind for investors in 2023.
In JPMorgan’s 2023 forecast survey, investors named US inflation and interest rates as the most important for US equity markets next year, followed by the US recession.
Bankers expect the Federal Reserve to further reduce the pace of tightening and secure 25 basis point hikes at its meetings in February and March, before it stops cutting interest rates and may later resort to cutting them in the second half of the year. Bankers expect the pound to continue to weaken, due to the expected economic downturn next year.
And the energy crisis could drag Europe into a deep economic quagmire if the Russian war in Ukraine is not resolved. Europe has so far managed to maintain high reserves of natural gas for the current winter period, but gas prices are still high and affect industrial efficiency, citizens’ lives and consumer consumption rates. Consequently, these factors will have a negative impact on the euro and other European currencies. As for oil and gas prices in Europe, Dutch bank ING expects natural gas prices to fall from the high levels seen earlier this year.
The bank believes spot market concerns over gas supply have eased, however, it says demand concerns are weighing on investor sentiment towards oil.
Most energy investment institutions believe that oil prices will rise due to the continued supply cuts of “OPEC +”, hoping that prices will return to levels above $100 next year.
As for natural gas, Dutch bank GNB believes that mild weather in the early part of the heating season has ensured that Europe will continue to stockpile for the winter. Natural gas storage continued to rise in the EU through mid-November, reaching nearly 96%, higher than the five-year average of around 88% for mid-November. This leaves Europe in a better position than expected for this winter and therefore the next few months are expected to be more favorable for Europe to manage natural gas at reasonable price levels.
Regarding the metals market, Greg Shearer, head of base and precious metals strategy at JPMorgan, says: “After metals prices hit their lowest levels in the middle of this year, metals should witness another decline next year, due to the economic recession, which is expected in the economies of large countries and the Corona crisis in China.