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Countries with advanced economies are expected to slow economic growth from 1.5% in 2023 to about 1.3% in 2024. Moving into Q3 2024, the economic slowdown might normalize with some interest rate cuts and banks adopting more accommodating monetary policies. This will result in some good news, as the latest forecast for 2024 shows a slightly better outlook compared to the end of 2023.
In this article, we will discuss the predicted market outlook for Q3 2024.
Q1/Q2 Market summary
- The Bank of Canada (BOC) has maintained its 5% overnight rate target since July 2023. With stagnant economic growth through Q1 2024, the BOC plans gradual rate cuts, reaching 3.0% over the next three years, cautious of core inflation trends.
- The Swiss National Bank (SNB) held its 1.75% policy rate in December 2023, with President Jordan signaling a possible shift in 2024 Q1 if the Franc’s strength impacts monetary conditions. Markets expect a 25 bp cut in March 2024 amidst subpar inflation and economic growth indicators.
- While the Fed’s dovish stance may pressure the Dollar, US economic strength counterbalanced in Q1. European and UK data weakness briefly supported the Dollar. However, expectations of rate cuts from the ECB and BOE still face challenges amidst the economic slowdown.
- Bullion prices are forecasted to rise further in 2024, driven by hedge fund momentum, central bank purchases, and renewed ETF investor demand in Q1 2024. Rate cut expectations from the Fed support the bullish outlook. Gold reached $2030 with ETF and central bank demand, while silver touched $22.97, narrowing the gold-silver ratio.
- The equities market has been bullish in Q1 2024, with the S&P 500 surging by 5.17%, resulting in a year-to-date (YTD) return of 6.84%. The Dow Jones Industrial Average also saw gains, rising by 2.22% for the month and achieving a YTD return of 3.47%. The S&P MidCap 400 performed strongly, with a 5.80% increase in February, bringing its YTD return to 3.92%. However, the S&P SmallCap 600® experienced a more modest increase of 3.15% for the month and remained down by 1.00% YTD.
Top market predictions in 2024 Q3
USD to strengthen the bearish trend
In Q3 2024, the USD is expected to continue its bearish trend, driven by factors such as cooling inflation and the absence of recession risks in the US economy. With discussions within the Federal Reserve increasingly leaning towards monetary policy easing and potential interest rate cuts, the outlook for the US dollar remains weakened. This trajectory suggests continued challenges for the USD against other currencies, presenting opportunities for traders to adjust their strategies accordingly.
AI-fuelled bull market to begin
Investors eagerly anticipate the rise of an AI-driven bull market, fuelled by significant advancements in artificial intelligence technology. Within the ongoing bull market, AI technology stocks have stood out as top performers, exemplified by industry leaders like Nvidia. This quality tilt toward AI technology bodes well for US technology companies, which have demonstrated strong returns on invested capital (ROIC). Notably, the technology sector boasts the highest ROIC among the 11 US equity sectors, averaging around 20% over the past 12 months, in stark contrast to sectors like utilities or real estate, which typically yield only 3–4% as per a report by UBS.
Increase in financial markets due to Fed rate cuts
Despite ongoing worries about inflation, interest rates, debt, and political deadlock in Washington, investors remain hopeful about the Federal Reserve’s capability to orchestrate a soft economic landing. They anticipate a shift from interest rate increases to cuts soon.
The Federal Open Market Committee’s (FOMC) latest long-term economic projections, unveiled in December 2023, forecast core PCE inflation of 2.4% and GDP growth of 1.4% for 2024.
Notably, FOMC members project only three interest rate cuts by the end of the year.
While Federal Reserve officials have tempered expectations of an imminent rate cut, many investors remain optimistic about the likelihood of rate cuts occurring sooner and more aggressively than initially anticipated.
Market sentiment, reflected in bond market pricing, suggests a 70% probability of the Fed issuing its first interest rate cut by March, with over an 80% chance of at least five rate cuts from current levels by the end of 2024, as also predicted by Goldman Sachs. Investors and analysts perceive rate cuts as favorable for stock prices, provided they are not accompanied by an economic downturn, signaling a bullish outlook for the stock markets in Q3 2024.
EUR/USD to remain volatile in Q3
In the approaching third quarter of 2023, the EUR/USD pair is expected to exhibit volatility due to various factors. Geopolitical events, such as trade tensions, elections, and global crises, hold significant sway over the pair’s movements.
Traders must remain vigilant towards developments in Europe and the United States, as unexpected shifts in the market could arise from these events. Economic data releases and central bank policies, particularly those of the European Central Bank (ECB) and the Federal Reserve (FED), will play a crucial role. Monitoring reports on both regions’ economic fluctuations, interest rate decisions, and growth figures is imperative, as divergent monetary policies may contribute to heightened volatility.
Growth currencies to increase if inflation stays above 3%
In 2024, a projected uptick in the US Dollar is driven by global economic conditions and US monetary policy. Goldman Sachs forecasts a modest expansion of the US economy, with growth ranging from 0.5% to 1%, attributed to tighter interest rates, anticipated to reach 4% to 5% by December 2024. Consequently, the Federal Reserve may implement rate cuts of 150 basis points starting in Q2 2024 to address inflation and employment concerns. Should inflation persist above 3% throughout 2024, a decline in US interest rates could benefit growth-oriented currencies, particularly growth stocks.
AUD to appreciate against USD
The Australian Dollar (AUD) is anticipated to appreciate against the US Dollar (USD) in 2024. Westpac and NAB predict a strengthening of the AUD/USD rate, with estimates ranging from 0.76 to 0.78 by June 2024, signaling growing confidence in the Australian currency’s performance. Economic factors, geopolitical dynamics, and global uncertainties will contribute to this positive trend. The Reserve Bank of Australia (RBA) implemented a 25-point interest rate hike in November 2023 and foresees maintaining rates until late 2024. Additionally, inflation in Australia is projected to peak at 3.5% in 2024, contributing to AUD’s uptrend.
BNP Paribas forecasts the AUD/USD to reach approximately 0.70 by the end of 2024, influenced by RBA policies and economic indicators, amidst sustained inflation levels exceeding 3%.
GBP/USD strengthening with a rise in 10-year treasury yield
Analysts project further weakness for Sterling in the first half of 2024, with potential declines to 1.17 or below before a potential turnaround. While outlooks vary among financial institutions, there’s a consensus on a downward trend for the GBP until mid-2024, followed by a potential reversal.
High inflation, currently a concern, is anticipated to ease and reach around 2% by Q2 2024, potentially prompting the Bank of England (BoE) to reconsider its strategy of interest rate hikes. Meanwhile, the 10-year Treasury yield has surpassed 4.492%, a level not seen since 2007, signaling a potential currency strengthening. Gov Capital projects GBP/USD to reach 1.99 by the end of 2024, reflecting expectations of currency dynamics amidst evolving economic conditions.
Navigating through the market trends moving forward in 2024
The financial market forecast for 2024 suggests a mixed outlook shaped by various factors such as global economic conditions and central bank policies. While the US Dollar may see slight growth due to tightening interest rates, currencies like the Australian Dollar are anticipated to strengthen against it. Navigating uncertainties and opportunities will require strategic decision-making and risk management throughout the year.
Disclaimer: All material published on our website is intended for informational purposes only and should not be considered personal advice or recommendation. As margin FX/CFDs are highly leveraged products, your gains and losses are magnified, and you could lose substantially more than your initial deposit. Investing in margin FX/CFDs does not give you any entitlements or rights to the underlying assets (e.g. the right to receive dividend payments). CFDs carry a high risk of investment loss.
Forecasts and predictions about future performance are inherently uncertain and speculative in nature. While every effort has been made to provide accurate and reliable information, there is no guarantee that the events or outcomes discussed will occur as forecasted. Past performance is not indicative of future results.
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