HYCM: Three market questions to ask for 2023

In short, the bank’s analysts believe that there is a possible path to a soft landing, but that this will be dependent on the Fed being able to tweak policy “just right” in order to stay on track.

Even Larry Summers, who has previously stated that a recession was inevitable, has recently softened his own stance regarding a soft landing. “I’m still cautious, but with a little bit more hope than I had before. Soft landings are the triumph of hope over experience, but sometimes hope does triumph over experience.”

Bank of America’s “sell-side indicator” has been falling precipitously since 2021. In December of 2022, it fell by 33 basis points, to a level just short of “extreme bearishness” which has historically signaled a reversal point and a buying opportunity. These potential turning points occur when investors are overwhelmingly leaning in one direction, as in the extreme jubilation that typically characterises the top of asset bubbles.

Tesla recently made it onto a list of 46 stocks that Goldman Sachs believes will perform well in the event of a soft landing. Tesla and other stocks are available for HYCM’s investors, who can also access Seasonax, the premier tool for discerning seasonal trends in the stock market.

Dollar Bounce or Continued Weakness?

Central to the above concerns is the prospect for the US dollar in the year to come. Many analysts were predicting a bounce in the greenback as the fears of a US recession followed by a global recession continued to mount in the latter half of 2022.

The continued improvement in sentiment surrounding the possibility of a US soft landing specifically and the global economy’s prospects more generally are causing analysts to cut their forecasts regarding the US dollar’s performance in the year ahead.

As fears of the severity of the downturn expected from a global tightening of financial conditions continue to ease, Morgan Stanley recently trimmed its 2023 year-end forecasts for the US dollar index from 104 to 98.

The bank now expects the EURUSD exchange rate to rise to 1.15 by the end of 2023, where it had previously forecasted a year-end rate of 1.08.

Dollar strength was one of the prominent themes of 2022. Bolstered by rapidly rising rates, an uncertain geopolitical situation, and expectations of an imminent recession. Last year, a surging dollar exacerbated weakness in many dollar-denominated assets, from commodities to crypto. A 2023 reprieve from this condition could signal a change of fortunes for these asset classes, particularly in the event that recessionary fears prove to have been overblown. This situation will become clearer as more information is released and with the intuitively designed HYCM Trader mobile app, investors can ensure they never miss an upcoming trade no matter where they are.

Gold Bull Market or Retracement?

Gold is currently in the middle of a multi-month surge that’s seen it going from the low $1600s at the end of October, to the low $1900s at the time of writing. Supported by central bank purchases throughout 2022, the 20% rally from year-end through to the start of 2023 has many analysts convinced that a more pronounced bull market may be in store for the yellow metal throughout 2023.

Ongoing de-dollarisation in the face of an uncertain geo-political climate is a major tailwind to the yellow metal, which is performing surprisingly well in a higher-rate environment. Should a pivot in monetary policy be also set in motion in 2023, the prospect of lower rates will likely provide further steam to an already impressive rally.

However, it’s probably the US dollar that’s likely to hold the keys to the fate of gold and exert the greatest influence on its performance in the year ahead. The DXY’s peak in October, and gold’s recent rally occurred at roughly the same time, with the two charts appearing to be mirror images of each other since late last year.

Gold recently made it into Saxo Bank’s 10 black swans for 2023 list, in which an incredible forecast of gold hitting $3000 dollars per ounce was made. The backdrop for this outlandish prediction is an expectation of increased economic isolationism and self-reliance over globalisation, as well as inflation proving to be far stickier than markets are currently pricing in.

Such a move is, of course, highly unlikely requiring a 55% rally from current levels, however, a fresh all-time high is not out of the realm of possibility. On the monthly time frame, at least, gold is currently within striking distance of all-time highs against the yen, sterling, euro, and the US dollar.

China’s goal of creating a petro-yuan in which the renminbi can serve as a global reserve asset rivalling the hegemony of the dollar, is dependent on its growing gold reserves, as well as the convertibility of the renminbi to gold in order to lend it wider credibility. The actions of the G7 against Russia in the wake of its war in Ukraine, also make gold more attractive to governments who fear falling on the wrong side of Western sanctions. Gold underperformed in an era of globalisation, where trust in the fiat system was high, could it be set to outperform in an era of deglobalisation? In fact, it is one of the most traded assets at HYCM.

Uncertainty is the Only Certainty

That is why it is important not to become married to any one narrative. A perfect example of why, is that much of the above would have been quite different just a month ago.

Investors operate in an uncertain environment at the best of times, but perhaps more so in 2023 when we have such a divergence between what the Fed has been signaling and what markets expect.

Add to this a highly uncertain geo-political situation, with an ongoing kinetic conflict in Eastern Europe, and ongoing tensions between the West and both Russia and China. To say nothing of the completely unforeseen events that can take everyone by surprise, which we’ve seen plenty of in recent years.

Continued uncertainty and volatility may be the only certainty for market participants in 2023, which makes position sizing, risk management, and the levels of cash reserves very important to get right. If all these factors are carefully considered there are many possibilities for trades.

Trade with HYCM

Disclaimer: The content of this article is sponsored and does not represent the opinions of LeapRate

High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

The post HYCM: Three market questions to ask for 2023 appeared first on LeapRate.

gold