2023 Predictions: Mid-year Scorecard

What an eventful first half it’s been.

Coming into 2023, no one would’ve expected a banking crisis on either side of the Atlantic (recall how SVB and Credit Suisse collapsed), nor being a whisker away from a civil war in Russia.

Back on January 4th, I wrote an article titled “3 potential winners in 2023”.

Here’s a mid-year report card on those 3 assets:

1) Gold to Hit $2000?

Yes. $2k target hit on March 20th.

Of course, spot gold needed the help of an unexpected banking crisis in the US and Europe to send investors scurrying towards the safe haven asset.

But since coming to within 0.57% or about $12 away from its record high ($2074.87 on 7th August 2020), gold has crumbled since May.

Why Has Gold Fallen Since May?

This is because markets have pushed back expectations for a Fed rate CUT.

• Back in early May, markets had expected the Few to LOWER its benchmark rats by September 2023.
• However, US inflation has since proven stubborn and the Fed appears to have to trigger more rate hikes than previously expected.
• Now, markets expect a 70% chance that the Fed will CUT interest rates only in May 2024!

Hence, given that investors aren’t paid to hold on to gold (gold is a zero-yielding asset), markets have since dumped the precious metal in favour of other asset classes.

As written back in January, the “What could go wrong” section on gold has indeed been playing out.

Though to be clear, despite recent declines …

Gold remains the second best-performing traditional asset class (excluding cryptos such as Bitcoin which has soared by over 80% so far this year).

• First place in 1H23 goes to global stocks (as measured by the MSCI ACWI Index) which has climbed by 11.4% so far this year.
• Second-placed bullion has a year-to-date gain of about 4.4% at the time of writing.

2) USDJPY Back Down to 125?

No, but it came close.

USDJPY initially appeared destined to claim the 125 target, reaching as low as 127.224 by mid-January.

Since then, USDJPY broke out of its downtrend to recently form a golden cross (when 50-day moving average crosses above 200-day moving average – a technical signal that often implies further gains ahead), and is now trading around its highest levels since November 2022.

What Went Wrong?

As stated in the USDJPY section of my January 4th article:

Still-dovish BoJ: the incoming BoJ Governor keeps Japan’s benchmark rate mired in negative territory on signs that inflation is not as sticky as hoped.

This scenario would be made worse if the Fed stays hawkish and keeps sending US interest rates much higher than the currently forecasted peak of around 5%.

The above “wrong” scenario has indeed played out, with the BOJ apparently not yet budging from its negative interest rates regime, while the Fed now projects US rates to peak around 5.6%.

Hence, Yen bulls (those hoping the Yen will strengthen) have given up for now.

However, note that markets are still predicting a greater-than-even chance (55%) that the BoJ could hike by December 2023.

Should those odds firm up, that could restore hope for a Yen recovery.

3) FTSE China A50 Index Back Above 14,000?

Yes. 14k psychologically-important line was breached on January 14th.

To be honest, when I saw that the 14,000 mark was breached a mere 10 days after my January 4th article, I initially thought I should have been more bullish in my prediction.

Instead, this turned out to be a rather PRUDENT forecast.

Since peaking at 14,420 in late January, which was a further 3% beyond the 14k mark,  this index which tracks the 50 largest A-share Chinese companies has embarked on a downtrend (a series of lower highs a lower lows).

In other words …

the 14k mark was just about as good as it got for the CHNA50_m index.

This is because China’s much-hyped recovery has fizzled out.

The economic momentum has clearly struggled post lockdowns, to the point the People’s Bank of China (PBOC – China’s central bank) has pivoted to a supportive policy stance, as opposed to other major central banks (Fed, ECB, BOE, etc.) who are still busy hiking interest rates.

Until China’s economic recovery can find a more solid footing, Chinese assets ranging from its stock markets to the Chinese Yuan are set to find it difficult to stage a meaningful recovery.

Same goes for other assets that are reliant on the Chinese economy, including the likes of the Australian dollar (AUDUSD) as well as oil prices.

So there you have it.

Surely, it has been an eventful first half.

If the 2nd half of 2023 prove to be as eventful, that may herald more trading opportunities across global financial markets.

And we’ll be keeping you up-to-date via our Daily Market Analysis.