Bank of England and Sterling

The biggest challenge for the Bank of England will be to tackle the cost-of-living crisis. It has already been predicted that 2023 will be a year of a prolonged recession. Market players are anticipating further rate hikes from the bank, and it is widely expected that the central bank’s interest rate will reach near 4 or 4.5% next year. Despite the increase in the interest rate, the Sterling could be the currency that may see more weakness during the first few quarters of the year. Still, inthe latter half of the year, we could see some strength returning only if the cost-of-living crisis is appropriately addressed.

European Central Bank and The Euro

The European Central Bank is expected to keep its foot on the gas, and it is anticipated that the bank will increase the rates next year. The most important economy to watch for is Germany, which is considered the economic engine of the Eurozone. So far, the data is faring well, and traders expected a mild recession to occur in the Eurozone. The ECB members have indicated more rate hikes next year, which could bring more strength to the Euro. In terms of a recession, it isn’t expected to be as deep as the UK, but the geopolitical factors and tensions will remain in focus.

The Fed and The Dollar

The Fed is expected to take its foot off the gas paddle next year. Jerome Powell played down the anticipation of lower interest rates as he believes the bank is still far from reaching its inflation target. Market players anticipate a further slowdown in the inflation reading in the Q1 and Q2 of next year. However, the strength of the labour market is the most important thing to watch out for. This year we have seen the labour market holding well. Overall, the dollar index is expected to move lower nextyear.

US Stock market

Fear of recession, energy prices, inflation and geopolitical tensions are the factors that we need to keep an eye on next year. 2022 wasn’t a great year for the US stock market, especially for the tech sector, which has hammered due to higher interest rates and supply chain shocks. Provided that we see China easing off its policies further next year and a peace agreement takes place between the US and Russia, we could see the US equity markets roaring back. Overall, markets are oversold, but technical analysis indicates that the bulls lack willpower.

Stocks to Watch

Here is the list of the stocks that would be interesting to look out for as they are oversold and have the potential to move higher:

  • Tech
  • Meta
  • Amazon
  • Google
  • Netflix

Here is the list of the banking stocks that could do well because of the higher interest rate environment:

  • Wells Fargo
  • Barclays
  • Bank of America
  • Citi
  • Goldman Sachs

Here is the list of consumer staples that usually do well in a recessionary environment:

  • Colgate Palmolive
  • Boots
  • Walmart

Bitcoin

The crypto king is expected to hold its value next year. The first quarter could be challenging for the BTC as the sentiment may continue to evolve around FTX and the domino effect of that. But if there is no other major blowout next year, we could expect the BTC price to do well next year.

Gold

The precious metal is expected to outperform next year for two main reasons. Firstly, the dollar index is anticipated tomove lower, which could bring more strength for the meta. Secondly, the equity market is expected to do well, which may push traders to hedge their portfolios more.

Oil

Oil prices will likely remain volatile next year, and next year’s range could be between $60-90. There will be an ongoing war between the US and OPEC about the supply, and Chinese demand will be the critical factor to watch out for.