Financial Market: 5 Aspects and 1 Key Factor to Look out for in 2023

For sure 2022 has been an eventful year for the financial markets. 

Interest rates went up, the war in Ukraine pushed global food prices up, and major US indices all had significant drops.

While no one knows how things will be even a month from now, there are a few things that special attention should be paid to as the year progresses.

With that said, here are some of the things to look out for in 2023:

1) IMF: The projections made by the IMF suggest weak or no growth in 2023 for most major economies, then a gradual recovery in 2024, the forecasts can be seen in the table below:

(IMF GDP growth projections, October 2022 - Original data from: International Monetary Fund)

What this means for investors with a longer outlook, is that we are clearly in a period of high uncertainty, and to reduce volatility more cash can be held (it now has higher interest rates) as well as less volatile stocks.

Diversifying into countries that are less exposed to the US and Europe may also be a good idea.

2) We don't know how or when the Ukraine-Russia war will end. It has turned into a brutal affair, with neither Ukraine nor Russia willing to budge. The risk that it expands into something worse than a bloody, ugly spat between the two neighbors is a factor that should be kept in mind until this is over.

3) Regarding Europe, the banking sector, asset management, and the financial sector, in general, could be favored by a situation of higher interest rates which gives banks more margin to work with, as well as a market rebound in prices which could bring investors back into the markets and thus improve revenues and assets under management.

4) The Federal Reserve is still the great unknown. Most Wall Street strategists see the central bank reaching a top or terminal rate of a bit over 5% in the first quarter and then watching to see if its efforts are working, so it will be interesting to see what the new year will bring.

So, don't expect a big rate drop this year.

The fact is it can take a year to 18 months for the full picture to emerge. The Fed kept its fed funds rate between about 4% and 6% for six years between 1994 and 2000.

5) Economic downturn: According to Credit Suisse, the UK and the Eurozone are expected to slip into a recession, while China will have less growth than previous years, given the fact that it only recently ended its strict COVID policies. 

Another major factor for the year will be inflation, it is expected to decline in 2023, but it will remain above the targets of central banks.  

Due to its significance, it will remain a crucial theme throughout the year.

Source: GEMFOREX​