The year in figures: stability in the markets in 2023

At BBVA Switzerland, our sights are already set on 2024. With the financial markets more stabilized and inflation more controlled, the objective now is economic growth. The appreciation of the euro and Swiss franc, the regulation of crypto-assets and the gradual decline of some raw materials are a few key points.

If we had to name one event to summarize what happened financially on a global scale, we would probably mention how financial markets have stabilized and how we are going back to an economic environment that is similar to pre-Covid levels.

For their part, the central banks have had success controlling inflation, which has fallen at the same speed at which it rose, although the effects on the economy of far higher rates than in the pre-COVID period are yet to be seen.

• Fixed income, a year of high volatility

Since the pandemic, fixed-income markets, which suffered so much in 2022, have shown a more positive and stable performance in every geographic area.

In fact, these assets, and most notably sovereign funds, are one of the assets that have best adapted to different environments. The latest statements from the main central banks point to a pause in monetary policies, which coincides with the evolution of the main economic indicators.

• Equities, on the road to recovery

Equity markets have recovered part of the ground lost during last year, led by companies with the largest capitalization, positioning themselves at around 10 % from the December 2021 highs.

• Commodities, more accessible

Even the commodities markets have exhibited a stable downward trend in most cases. The price of a barrel of Brent Crude is around 82 USD, which represents a decrease of 40% from its record levels and 10% from the pre-Ukraine war levels.

Gold has behaved differently, rising around 10% in value during 2023, closing the year 2% below the maximum highs of 2,080 USD per ounce.

• Currencies, stability with slight changes

During this year, the foreign exchange market was characterized by a slight appreciation of the euro and the Swiss franc against the American dollar (USD), as well as the significant strength of the Mexican peso, with no sharp variations in the different ratios.

• Crypto-assets, no longer the Wild West

Blockchain technology continues to grow as shown this past year. The two main cryptocurrencies have grown greatly in value, international regulations have strengthened consumer protection, tokenization of the economy and crypto-nations are a reality, and financial agents are betting on digital assets.

In 2024, we expect a delayed monetary policy effect to kick in. and a lower contribution of fiscal policy should promote a low growth environment, below the potential of most economies. We do not contemplate a severe recession provided there are no strong macroeconomic imbalances.

As for inflation, both in the US and in the Eurozone, we expect the general and underlying inflation to continue their downward path to levels slightly above 2% by the end of 2024. Energy prices will continue to contribute negatively, while food inflation will continue to be reigned in. The risk lies in some structural strength of the labor market.

The crucial point for markets in 2024 will be the evidence that inflation is under control so that central banks can start cutting interest rates. The context would be appropriate for fixed income to perform well. Interest rates have already risen significantly, and investors will be able to benefit from a positive return in the form of coupons and their low risk or volatility, particularly compared to other assets.

With this sustained reduction in inflation, fixed-income is expected to improve its performance in both emerging countries and in more developed countries. The latter offer high returns, and some countries are already in the middle of a rate cut cycle. High-quality or investment-grade credit is also interesting in terms of risk/return.

In conclusion, our central scenario for 2024, is characterized by below potential economic growth, but avoiding a recession. Inflation will continue to fall to around 2 % which will allow the central banks from developed countries to start lowering interest rates. We will therefore have an ideal environment for fixed income investments, once we leave behind the sharp increase in interest rates begun in 2022. Stock markets may also have positive returns in 2024, supported by modest profit growth and in some cases attractive valuations. However, in terms of risk-adjusted expected returns, we prefer fixed income to equities. Finally, given the current uncertainty regarding the economic cycle and the geopolitical situation, it is important to realize that the position may require a dose of flexibility throughout 2024.

The team of experts at BBVA Switzerland is engaged in a strategic reflection process to further its transformation and adapt to the constant ups and downs in the financial sphere and to the main trends that are changing the world and the financial sector. We are adding sustainability and innovation as one of our priorities, placing the customer at the heart of everything to bring them closer to the opportunities of this new era.