• That’s the narrative that is being tossed around

• The FFR could be cut between 4x to 6x in 2024

• Upside risk to global growth in 2024

• Gold rallied to a record high last Friday.

New York Stock Exchange had a field day last Friday amid sentiment that was boosted by the prospect of a sharp cut in FFR. DJIA and S&P 500 closed 300 and 30 points higher on Friday, a huge catalyst for Emerging Markets (EMEs) opening on Monday. Traders have started to look well into 2024 and disregard key economic releases in December including US November unemployment (8th December), November CPI (12th) and FOMC 8th policy decision (14th). Suffice to say that investors are confident that US inflationary pressure are coming off convincingly particularly when US’s PCE has dropped to 3.5% in October versus 3.7% in September. This is sharply lower compared to a year ago of 5.0% (October 2022). Nonetheless, this is still a long way to go given the pre-COVID level of sub-2.0%. Having said that, investors are pump-up on the direction of FFR given the speculation that the US FOMC may cut the policy rate by a whopping 150 basis points (bps) in 2024, by 25 bps each or 6x in 2024, starting in April. This is against our view of 100 bps cut, by 25 bps each or 4x in 2024, to begin in July. In any case, the speculative overdrive mode will be very positive for equity market particularly for EMEs. Gold price received the biggest push amid the expected cut in FFR and the projected drop in USD that lifted the gold price to above USD2k per ounce troy, the highest in record. It closed at USD2,072 last Friday, a contrast compared to COVID-19 low of USD1,633. The rise in gold price is usually driven by 1) a crisis or contagion effect or 2) the weakness of USD that will power demand or 3) bullish global outlook. Thankfully, it’s the latter two. The bullish outlook is also verified by the tepid VIX index which tanked to 12.6 last Friday, a huge improvement compared to the peak of Hamas-Israel conflict (21.7) and the worst of COVID-19 (March 2020: 53.5). In sum, all is well and we have only a few hurdles to pass before the global economy reaches it potential again. That said, we anticipate an upside risk for global growth next year which is projected to moderate at 2.9% in 2024, against 3.0% in 2023. This will be powered by the US’s strong economic momentum amid the economy that may be able to maintain a strong output despite the sharp increases in FFR. So, will the Fed cut the FFR by 4x or 6x and earlier-thanexpected? That said, the US FOMC remains resolute on dependent approach. Therefore, this is not cast in stone though we think a 4x increase in FFR will not be over stretched. It is important to remember that US labour market is still strong amid job openings that stayed above 9mn in October, more than double compared to pre COVID-19. Hence, a measured pace approach is the best option given the risk of US inflation that could rebound unexpectedly. We retain our view of 4x adjustments in FFR next year, beginning in July.
 

Source: BIMB Securities Research - 4 Dec 2023