2023 unwrapped: USD, GBP, EUR, Gold, Natural Gas, S&P 500, Nasdaq 100 outlook for the year ahead
11:47, 29 December 2022
As the year draws to a close we can reflect on the past 12 months and how markets have performed. Overall, 2022 has been a year of geopolitical turmoil, economic uncertainty and tightening monetary policy, which has resulted in heightened volatility and unexpected market events.
Commodities were the clear outperforms throughout the first half of the year as the war between Russia and Ukraine sent energy prices soaring. The threat of persistently high inflation, which had already started to rise on the back of the post-pandemic economic recovery, triggered a response from central banks which led to consecutive interest rate hikes in most developed economies, meaning stocks were heavily sold and the US dollar became the leading currency.
This theme quickly took a turn in the fourth quarter when consumer prices started dropping from their 40-year highs and unemployment crept up, leading markets to believe that central banks, and most importantly the Federal Reserve, would have to start scaling back on their policy response in order to avoid causing a deeper recession than anticipated. This led to the unwinding of the dominant theme throughout 2022 and saw stocks rally and the US dollar drop to 4-month lows.
So, to sum up the year and lay out the key themes and events for each of the main assets next year we have put together a series of outlooks for 2023 which you can find listed below.
CURRENCY MARKET OUTLOOK
US dollar 2023 outlook: Can the Fed convince markets that rates remain higher for longer?
2022 has been one of the US dollar's best years in the 21st century. That is especially true if you focus solely on the first three quarters of the year, which saw a 21% gain in the dollar index (DXY). The fourth quarter has been a completely different story so what is in store for the US currency in 2023?
Euro (EUR/USD) forecasts and outlook for 2023: Hawkish ECB to offset gas supply and growth fears?
In the first nine months of the year, the war in Ukraine, the Fed's aggressive rate hikes in the face of a dovish ECB, and the gas crisis caused the euro to fall below parity with the dollar. However, a milder-than-expected start to the winter and a firmly hawkish ECB helped the single currency to recover part of its losses in the last quarter. Looking ahead to 2023, investors remain mostly focused on the ECB's capacity to raise interest rates in the midst of a recession and continuous inflationary pressures tied to Europe's prolonged energy crisis.
British Pound (GBP) 2023 Outlook: Challenging Times Ahead Amid BoE and Growth Risks
In a year that has seen three UK Prime Ministers, and four Chancellors, it is fair to say that 2022 has been a year to forget for the Pound. The currency has been among the worst-performing currencies in the G10 amid a war in Europe, an energy crisis, double-digit inflation and political instability. That said, the Pound has seen a late surge in Q4 and looks set to close the year down circa 10%, but will the BOE be able to live up to market expectations and deliver further rate hikes to keep the Pound supported in 2023?
Canadian Dollar 2023 Price Outlook (CAD) - Housing Market Vulnerability is an Emerging Theme
Much like the majority of USD pairs, the Canadian Dollar struggled against the greenback throughout 2022 with the currency slipping as much as 7% at the time of writing. What’s more, a sell-off in Q4 saw the Loonie notably underperform on the crosses, making the currency one of the worst performers in the G10 in 2022. A key theme for 2023 will be what happens to the housing market following an aggressive tightening cycle. Canada’s economy is much more sensitive to rising rates than in the past given the highly levered housing sector.
Australian dollar (AUD/USD) 2023 price outlook: Aussie to soar on China's reopening and Fed pivot?
The Australian dollar witnessed a negative 2022, sliding almost 7% against the US dollar, owing to China's prolonged Covid lockdowns hurting domestic growth and the Federal Reserve's aggressive rate hike cycle fuelling USD demand. Eight consecutive rate hikes by the Reserve Bank of Australia have brought Australian interest rates to 3.1% as of the end of the year, pushing borrowing costs to the highest they've been in a decade and marking the fastest RBA's tightening cycle since 1989. But what has been a headwind for the Australian dollar in 2022 may gradually turn into a tailwind in 2023.
What is your sentiment on US100?
STOCK MARKET OUTLOOK
US stock market 2023 outlook: Can a soft landing still be achieved?
2022 has been quite the ride for the stock market as geopolitical tensions, macroeconomic uncertainty and interest rate hikes took over market sentiment. As expected on the back of the Russia-Ukraine war, the best-performing sector has been energy, whilst technology, consumer discretionary and communications have been the worst performers. But markets are struggling to believe that the Fed will be able to keep rates higher for longer, meaning they have little faith that a soft landing can still be achieved. How these expectations evolve in the first few months will be key to determining the momentum in the US stock market.
FTSE 100 & DAX 40 2023 Outlook: Central Bank Policy Presents the Largest Risk
In a year that has seen the majority of markets fall into bear market territory in the wake of global central banks raising interest rates at the fastest pace in decades, the FTSE 100 has stood out to be the outperformer across major markets whilst the DAX 40 has fallen in line with the majority of its counterparts. How will BOE and ECB policies affect the performance of these European stock indices in 2023?
Natural gas price 2023 outlook: Can a recession ease the energy crisis?
Natural gas was one of the strongest markets in 2022, substantially outperforming other commodities as well as more traditional asset classes such as stocks and bonds. Europe's energy crisis, weather-related winter demand, and technical issues continue to have a huge impact on the global natural gas market. Will natural gas be able to repeat its excellent performance next year, or will a recession in the first quarter of 2023 accelerate the decreasing trend that began in the autumn?
Oil 2023 outlook: How will recession fears and price cap affect prices?
As with most commodities, oil is highly sensitive to supply and demand factors and the state of the economy. Both US crude and Brent Crude started the year by reaching their highest levels since 2008 as Europe was being plunged into an energy crisis that remains unresolved, but as momentum has reversed throughout the year, they are both now facing their lowest level in 2022. There are many factors at play in 2023, including the supply/demand play-off, the drop in forecasted oil demand, and the US/EU price cap, amongst others.
Copper price 2023 outlook: China's recovery and depleted stocks to offset US recession fears?
Copper had a negative year in 2022 due to slower growth in China as a result of protracted Covid lockdowns and a stronger dollar amid aggressive Fed interest-rate hikes. Although demand and supply predictions are projected to balance out next year, copper stockpiles are at extremely low levels, implying that any unexpected consumption or production shock might cause massive price swings. A US recession is an obvious downside risk for copper, but demand may increase if China's economic recovery gains steam.
Gold price 2023 outlook: Will stagflation push bullion to fresh all-time highs?
With a largely flat performance in 2022 but fluctuating within a large 20% range, gold has had a wild 2022. Throughout the year, the precious metal suffered as the US dollar strengthened and US Treasury yields rose. In addition, continuous Covid lockdowns in China hindered jewellery demand from one of the world’s largest consumers of precious metals. Will a global slowdown in 2023 cause central banks to loosen their monetary policies and allow gold to shine once again?
Silver Price 2023 Outlook: Will Silver Underperform Gold in 2023?
Silver is set to close 2022 with minor gains and perhaps more surprisingly, actually outperform gold, albeit after a much more turbulent year. Two factors behind silver’s underwhelming performance this year were the US dollar's strength and higher bond yields, which stemmed from aggressive policy tightening by central banks globally to quell inflation. As we look ahead towards next year and for the most part, central bank policy, in particular, the Federal Reserve’s policy will be the key driver for silver.