US Equities: Big tech remains a buy
US stock markets have been put under pressure, in very volatile conditions, through the whole year in 2022. Geopolitical tensions in Eastern Europe, tightening monetary conditions and uncertain mid-term Economic outlook have significantly impacted risk appetite from investors. Even if questions about where the FED will drive borrowing rates in the end, a lot of the 2022 bearish leverages have been already priced-in and we expect stock markets to stabilize following this year’s sell-off. That said, investors will need further evidence of the reality of J. Powell’s “soft landing” prior to drive equities to new highs. On a side note, we expect the TECH sector, especially large caps paying dividends, to progressively catch-up with industrial shares as investors can now enter those markets at discounted price.
European Shares: It may get worse before it gets better
The situation towards EU shares remains difficult to assess. Even if European benchmarks usually follow the trend set-up by US equities, investors bear in mind nations continue to be exposed to strong geopolitical and energy risks in the region, especially in the first part of 2023. In addition, monetary conditions will continue to worsen for another couple of months at least as they ECB is still far from the end of its tightening curve, with record inflation levels as a major lingering problem in the Eurozone. European markets will certainly stabilize and even end their bearish correction on the mid to long-term, but the situation may get worse before it gets better. The possibility of a lack of appetite for these markets in the very first part of the year is seen as the most likely scenario for now.
Oil: Medium-term price target at USD 100
2023 has been a very volatile year for oil traders. The market went 40% higher in the first part of the year, boosted by market uncertainty brought by the war in Ukraine and limited output, sitting above $125 in March. Since then, OPEC countries significantly increased oil output while the jumbo rise in US Dollar put further pressure on barrel prices, leading oil markets to erase all gains in the second part of 2022. However, the situation may significantly change in 2023 for oil traders. The expected devaluation of the US Dollar should lift some pressure off oil markets, while growing Demand from Asia (due to reopening in China) may spark further interest in this sector. The $100 mark could constitute an interesting target on the mid-term for oil investors.
By Pierre Veyret, Technical Analyst at ActivTrades
US-Dollar dominance likely to fade
The US dollar has been the star performer amongst major currencies in 2022. This is likely to change in 2023. The greenback’s dominance is unlikely to continue. The markets have all but priced-in the Federal Reserve’s aggressive tightening of monetary policy, with the central bank expected to take the foot off the accelerator in the new year as American inflation starts to stabilize. Against this background, and with other major central banks still battling to contain escalating consumer prices, and likely to keep hiking rates after the Fed’s pivot, the US dollar’s supremacy could fade next year.
Euro in strong starting position for 2023
The single currency should remain stable during 2023. After a year when at some point it was down by 16% in relation to the US dollar, the euro has since paired back a significant portion of the losses. Next year we expect the stabilization to continue. With the ECB battling lingering inflation, and likely increase rates further, the euro should find support in the markets and could gain ground on currencies such as the dollar and the British pound.
Fed pivot and geopolitical uncertainties to support gold price
A rollercoaster would be a fitting description for the price action of gold during 2022, oscillating between a maximum of $2070 and a minimum of $1614. The precious metal has been trapped in a tug of war, with a strong dollar capping any haven upside created by inflation and war. As we head into 2023, the Federal Reserve is expected to pivot in its rate hiking drive and the dollar is likely to soften, benefiting gold due to the inverted price correlation between the two assets. Meanwhile, geopolitical instability and inflation are unlikely to disappear from investors’ radars, and may drive an increase in demand for the precious metal due to its refuge-asset status.
By Ricardo Evangelista, Senior Analyst at ActivTrades
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