We wish all of our subscribers a happy, healthy, and prosperous 2024.

It was impossible to see a clear trend when the market’s mood seesawed between recession and soft-landing in US through 2023. 
That 2023 witnessed a relatively strong USD can be explained by two main factors which begot a USD-smile environment where USD cannot fall from grace in either case. The expectation of rate cut from FED turned out to be a damp squib because of tenacious inflation, furthermore, better US data has taken main street aback although a torrid time caused by mini crisis in bank sector in March.

The rapid recovery from covid in China became a delusion while resilient US economy made policy maker so comfortable that they were able to commit itself to hiking rate without worrying triggering a recession, this striking contrast appears to persist unless a plan of overhaul in the politburo agenda.  US economy could have been brighter if it were not for Fed choosing fighting inflation as lesser of two evils. 
Indeed, it is hard to find a year like 2023 that US equities generated double digital return driven by Magnificent 7 in a tightening cycle, however, at this stage, we are increasingly reluctant to chase this move as the markets are far ahead of data, and it remains to be seen how ramification of hiking rates dent economy and to what degree.

Speaking of USD, if my memory serves me right, the forecast for USD in 2023 from buyside was a far cry from what we have seen. I believe that a peak delayed story for USD is playing out, in other words, the USD rate and yield advantage would continue to fade as the US economic outlook deteriorates accompanied by disinflation. There is a risk kept my mind that USD's high carry and negative correlation to risk assets will render it an attractive hedge, as always, even though from a valuation perspective, USD still over 10% overvalued on trade-weighted basis.

The rest of G10, given we are standing on a threshold of loosening cycles, the rate cuts may well take place everywhere, which create a tailwind for high-beta currency barring geopolitical recession does not arrive. However, growth momentum in Eurozone has been admittedly moribund. With inflation moving close to target, cyclical data once again dictated the policy direction in which ECB to be more dovish than the Fed in coming months, leaving EUR more vulnerable. You can find more details in our daily reports.

Our calls have been wrong as often as right, personally, I was a little bit at a loss for word over 2023, but struggling and suffering to depict 2023 is an understatement. The motto that the fundamental tells you what to buy or sell and the chart tells you when to do so comes off as easy, yet the hard part is that you can be nonchalant in front of the screen when they are conflicted. 2023 was a year to forget, but also a lesson to learn. Uncertainties and risks abound ahead of us in 2024 while some opportunities have stood out.  

2024/01/05

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