The year in figures: stability in the markets in 2023

4 min. reading
BBVA Fixed Income, Digital economy, Market news, New Gen, Private banking / 21 December, 2023
The year in figures: stability in the markets in 2023

Communications

2023 is drawing to a close and it is time to take stock of the milestones and noteworthy events in the global economy. What has happened this year? How have the markets behaved? Have we now recovered after the pandemic? Just as we know that 2023 has been the warmest year ever recorded, conclusions can also be drawn on global growth, the economic recovery and inflation. These are some of its highlights.

At BBVA Switzerland 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.

Return to pre-COVID levels

If there is one particular highlight to summarize what has happened on a global scale economically, we should probably talk about how the financial markets have stabilized and returned to an economic environment similar to that of pre-COVID pandemic 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 greatly during 2022, have behaved in a more positive and stable manner in all geographical areas. 

In fact, these assets have best adapted to different environments, particularly the sovereign wealth funds. 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

Raw materials markets have also shown a steady downward behavior in most cases. The price of a barrel of Brent Crude Oil 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 the year coming to an end, the foreign exchange market has been characterized by a slight increase in the euro and the Swiss franc against the US dollar (USD), as well as significant strength of the Mexican peso, without sudden variations in the different ratios.

  • Crypto-assets, the not so Far West anymore

Blockchain technology continues to grow as shown this past year. The two leading cryptocurrencies have increased in value, international regulations have strengthened consumer protection, the tokenization of the economy and crypto nations are a reality, and financial actors are venturing into digital assets. 

What can we expect in 2024?

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

Regarding inflation, in both the United States and the Eurozone, we expect general and core inflation to continue their downward trend to levels slightly above 2 % by the end of 2024. The energy price would continue to have a negative effect, while food inflation will continue to fall gradually. The risk would be in a certain structural strength of the labor market.

The crucial point for the markets in 2024 will be the evidence that inflation is controlled and that the central banks can start to lower 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 more developed ones. The latter offer a high return and some countries are already immersed in the rate reduction 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, and given the current uncertainty regarding the economic cycle and geopolitical situation, it is necessary to consider that a flexible approach may be required towards the positioning in 2024.

The future, our best investment

Our of experts at BBVA Switzerland are implementing a process of strategic reflection, developing the transformation and adapting to the continuous fluctuations of the economic environment and the major trends that are changing the world and the financial industry. Sustainability and innovation have therefore become one of our priorities, focusing on the customer to bring them the opportunities of this new era.