In the first half of 2023, the world’s central banks were at the end of interest rate hike cycles, which led to a weakening of the US dollar. The banking crisis threatened to collapse the financial markets and continues to influence them and shape profitable investment strategies. the OctaFX Experts have identified several trends that will drive financial markets in the second half of 2023.
High inflation in early 2023 forced central banks around the world to raise interest rates. This has greatly affected the financial sector, with many regional banks facing bankruptcy or bankruptcy. Demand for artificial intelligence (AI) technologies has driven growth in the capital markets. With a clearer picture of peak rates, investors can now consider which investment options are most likely to make them profitable in the second half of 2023.
Inflation is receding as central banks adopt a pessimistic stance
Capital flows between markets are affected by the economic cycle in developed and emerging markets. To determine what stage the global economy is currently in, it is important to consider inflation and interest rates.
Consumer inflation data indicates that the inflationary shock that occurred in early 2021 has subsided by the end of 2022, and that global inflation is currently declining.
As inflation expectations recede, central banks have paused to raise interest rates. This indicates that the global economy is ready for strong growth and is in the early cycle stage.
What types of assets may offer great investment opportunities?
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gold: As the US Federal Reserve’s initial rate hike cycle comes to an end, dollar weakness is expected to boost gold, which could exceed $2,000 per ounce..
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euro: The European economy is currently facing greater challenges than the US economy. Hence, the ECB is adopting a more hawkish stance, planning to raise interest rates by 0.25% in both June and July, which could send EURUSD higher to 1.1800.
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Japanese Yen: Inflation in Japan remains high, and analysts expect the Bank of Japan’s policy change on yield curve control at the July meeting. Therefore, the USDJPY forecast stands at 150.
The early business cycle creates headwinds for oil
Every stage of the business cycle has winners and losers early stage, which usually lasts about a year, is characterized by a significant market growth of about 20%. Financial institutions benefit from lower rates and increased lending, while the production and sales of consumer and durable goods are actively growing.
during this period, energy
Shows the most significant negative trend. Historically, the oil and gas industry has performed poorly in the early stages of the business cycle when the economy is beginning to recover – this is due to low inflation.
The industry performs best at the end of the business cycle. As the purchasing power of money weakens, tangible assets such as real estate, commodities, and hydrocarbons gain value, making oil a natural hedge against inflation. Because of the inflationary shock, we have seen oil prices go from $20 to $120 in the last two years, but now it’s falling. It seems that investment opportunities in the industry have been exhausted.
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In the second half of 2023, investors should consider the expected decline in inflation and interest rates, which is likely to weaken the dollar and boost gold. Due to changing monetary policies, currencies such as the euro, Japanese yen, Australian and New Zealand dollars may experience significant growth, while oil and gas instruments may be less attractive during this period. OctaFX Financial market analyst.
