Dear Readers,
First and foremost, I would like to wish everybody a "Happy New Year" and I hope Year 2024 is a blessed year for all Traders & Investors, with abundance in new opportunities, good health and wealth.
Despite my busy schedule working as Business Development in Private Credit Funds, I would like to take this opportunity to update everybody or my valued clients on what are the dangers and opportunities in Year 2024 that you can take and perform necessary risk management or adjustment in your portfolio based on scientific quant data to derive better decision making process.
The DANGER surrounding year 2024 would still be inflationary pressure, but why inflationary pressure where data point to downward trend and recent inflation figure was 3.1% down from 6.5% in January 2023, Core inflation was 5.6% in January 2023 and recent core inflation rate was 4% posed a threat.
Inflation Rate November 2023
Core Inflation Rate November 2023
Lest we forget currently we have 2 wars fighting on the soil of Europe (Ukraine & Russia) and Middle East (Israel & Militants group Hamas), These 2 wars potentially posed a threat to global supply chain disruption where we witness high insurance premium to transport freight, supplies route cut off and harvest dwindle due to ongoing military operation.
The Federal Reserve are undertaking Quantitative Tightening (QT) increasing interest rates combating soaring inflation negating by Quantitative Easing (QE) to fund Ukraine and Israel due to force majeure because of military operation whether central banks of Ukraine and Israel and banks are still in operation, because rockets propeller or dronecarrying explosives are landing on the soil Ukraine and Israel.
Another wild card is "Will history repeat itself, Crude Oil Embargo in 1970s?" During the 1973 Arab-Israeli war, OPEC imposed an embargo against US in retailation for the US decision to resupply the israeli military and to gain leverage in the post war peace negotiations. Should the genocide in Gaza Strip further escalates, Muslim Brotherhood will do whatever it takes to retaliate against the US & Israel.
Currently Red Sea and Suez Canal was targeted by the Houthis conducting an offensive against the merchant container ships from the West, plying the artery route of shipping (Suez Canal) causing many ships to pay a premium in surance coverage operating along Red Sea and Suez Canal, paying higher labour wages and bonuses for Seafarers, or re-route taking a longer distance causing delays or bottleneck in shipping by consuming more diesel adding to higher costs of shipping a result of cost push couple with demand pull inflation.
https://www.freightwaves.com/news/why-attacks-on-container-ships-caused-container-stocks-to-jump
Higher commodities futures price means commodities producer pumping in more investment to capitalise on profits, driver of inflation currently crude oil (WTI) is trading at 71 USD, probability of uptrend or downtrend is higher based on current price 71 USD close at last trading day 29 December 2023, all time high was 147 USD in year 2007 while the all time low was 6 USD in year 2020.
Crude Oil (WTI) Futures
Interest Rate Cut Expectations in Year 2024
Currently, my observations for Year 2024 where many Traders and Investors are calling for Federal Reserve to pivot and to lower interest rate to stimulate the slowdown in economy growth and fears of recession due to excessive interest rate hike.
Interest rate cut mean economy is underperforming hence required to cut interest rate to stimulate economy growth, interest rate cut will also fuel more money supplies (M2) into the financial system speculative in nature in addition to current QE measure fueling soaring inflation again.
My opinion is there will be no recession in year 2024, contrary to Financial Markets will experience an upside rally breaking highs and create new 3 year high from year 2021 despite iterest rates reaching 5%.
The Federal Reserve will not lower interest rate that risks of excessive money supplies that translates into higher inflation, to pivot or lower interest rates in year 2024 meetings may signal to the public that America economy is contracting and experience a recessionary environment that require monetary stimulus to stimulate and boost the economy that will affect approval rating of President Biden Administration, inability to achieve economy growth to secure electoral votes in Presidential Election in year 2024.
A shift to PetroYuan replacing PetroDollar may cause the USD to weaken, depreciate, losing world reserve currency crown, through losing PetroDollar benefit of consistent trade deficits and source of liquidity, inflow of foreign capital through PetroDollar recycling, US would be stuck with lots of extra dollars that would be no longer in demand, these dollars would return and flow back to US then translate to massive inflation.
Higher possibility of the Federal Reserve may maintain a longer pause between monthly meetings or minimal hike of 2-3 rounds of 25 basis points to 6% in 2024. current Fed Reserve Funds rate stand at 5.25 to 5.50%.
Based on Data Analytics, S&P500 would break all time high at 4800 reached in year 2021, S&P500 is forecast to reach 5300 to 5500 by July 2024 making new 3 Year high, after reaching new high, S&P500 is forecast to experience a pullback with corrective wave from 3 to 6 months. Investors can adopt short term hedging by buying puts and selling calls option expiring between August to December 2024. S&P 500 is forecast to retest 4800 previous high as support and accumulate demand zone between 4500 to 4800 from August to December 2024 provided data analytics still point to Bull market beyond year 2024.
OPPORTUNITY
1) Crude Oil (WTI)
Commodities producers will channel more resources into investment to boost supplies when commodities price is price higher whereas vice versa commodities producers will limit any resources into investment causing shortage in supplies when commodities price is price lower.
In order to secure more electoral votes during US mid terms elections in November 2022, a total of 180 million barrels of crude oil was released from strategic reserves to mitigate price of energy inflationary pressure felt by US residents in the midst of Russia Ukraine war where US and allies enforce economic sanction crude oil and natual gas supplies embargo. Oil released from the strategic reserves has result in dangerous low inventory level that require to re-stocking to pre-released inventory levels, so crude oil current trading at 71 USD, downside is limited supported at 70 USD level with attractive upside of risk reward ratios 2: 1.
Due to erratic climate change osciliate between extreme hot and cold weather, Russia Ukraine war, inefficiency of renewable energy not operating under full load in peak and off peak hours causing electricity supplies shortage. Hybrid model is preferred with an array of alternatives from fossils to renewables, natural gas and nuclear energy adjusting to weightage and allocation depending on price and supplies of energies.
Combination of possible Crude Oil embargo and crude oil production cuts by OPEC will spur price of crude oil higher.
Although G7 economies join EU placed 60 USD price cap on Russian Oil will have limited downside at current levels, because this is a war between price taker and price setter, price taker G7 and EU will lose to price setter (Russia + OPEC) because an Oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies, dominated by a small number of large sellers or producers enough to give each firm some market power. Oligopolies often result from the desire to maximize profits which can lead to collusion between firms.
Reason for current crude oil revision lower was probably due to growth in China slowdown and possibility of entering into a recession in year 2024 and deflation.
https://www.aljazeera.com/news/2022/10/19/biden-releasing-15-million-barrels-of-oil-from-strategic-reserve
https://www.barchart.com/story/news/12179723/g-7-joins-eu-on-60-per-barrel-price-cap-on-russian-oil?custom_url=news
Gold
Gold price target for year 2024 is expected to osciliate between 1900 to 2500 USD. De-dollarisation persists compel China switching to gold from selling US Treasury, diversifying from reduction in its US foreign reserves holdings.
https://www.bloomberg.com/news/articles/2022-12-07/china-announces-jump-in-gold-reserves-after-more-than-3-years
https://asia.nikkei.com/Business/Markets/Commodities/China-thought-to-be-stockpiling-gold-to-cut-greenback-dependence
https://www.reuters.com/markets/commodities/chinas-reported-gold-reserves-rise-first-time-since-2019-2022-12-07/
https://www.scmp.com/economy/economic-indicators/article/3202672/china-stockpiling-gold-1-million-ounces-added-november-amid-beijings-asset-diversification-efforts
https://www.kitco.com/news/2022-12-07/China-buys-32-tonnes-of-gold-in-November-first-increase-in-reserves-since-2019.html
https://www.bullionstar.com/gold-university/chinese-central-bank-gold-buying
https://moneyweek.com/investments/commodities/gold/603131/how-much-gold-does-china-own
China has been reducing its USD foreign reserves for consecutive months in a bid to limit US financial weapons by sanctioning. Will this measure leads to USD to further depreciate in time to come?
https://www.spglobal.com/marketintelligence/en/mi/research-analysis/china-may-move-to-limit-impact-of-us-financial-weapons.html
2) Weakening of US Dollar
USD last trading close at 101 USD on 29 December 2023, technically suggest downside bias to support level at 100 and 90 respectively.
High probability of USD downside bias is attribute to Fed Reserve action of interest rate hike, so year 2024 presidential election year, interest rate is expected to maintain status quo, longer pause or interest rate cut expectations will drive USD lower. Hence fundamentally all other currencies pair trading against USD will strengthen as a result, with their central banks hiking interest rate to match Fed Reserve hike and smart monies in search of yields will flow to other strengthening currencies.
3) Industrials sectors comprising Aerospace & Defence, Electrical Equipment & Machinery, Buliding Construction and Transport & Logistics (Airfreight and Seafreight)
Smart money will rotating from Financials (XLF) and Industrial (XLI) during year 2023 will continue in year 2024, reason being there are 2 geopolitical conflict happening right now in Europe and Middle East, Asia Pacific is the next hotspot to watch out for with current ROC Presidential Election taking place on 13 January 2024, how Taiwanese vote for their President from DPP or KMT or PPP?
US Congress made up of mostly Republicans are opposing to provide military aid, military funding to Ukraine hence in a couple of months Ukraine unable to fight without military logistic supplies from funding to military equipments.
Current Gaza Strip, military Industrial complex (MIC) are selling military supplies to Israel to combat Hamas, Ukraine and Republic of China (ROC) and US is unable to support 2 or more battle grounds simultaneously from their MIC production capacity.
Baltic Dry Index which measures global seafreight activities, the costs of shipping goods worldwide, is another important indicator to look at and assess whether global economies is booming or contracting, currently bottoming at 965 on 31 August 2022 after reaching high 5526 in October 2021.
My Quantitative Finance model direct me to Industrials Sector rotation during end November in advance of Houthis Red Sea Suez Canal attack on merchant ships.
Sector Rotation Quant Data 29 December 2023
Shipping Companies
Recent cotainer freight rates reach 10K USD from Houthi attack shipping vessels in Suez Canal driven by cost push and demand pull inflation, paying higher insurance premium operating in Red Sea Suez Canal, Supply Chain disruption caused by re-route and delays, higher wages and bonus for Seafarers. Therefore Shipping Companies will outperform in year 2024 registering higher profits so long escalation in Gaza Strip prolong for an extended period of time.
Cosco Shipping is the only exception that Houthis are not targetting attack. Hence global e-commerce companies or logistics companies would prefer to engage Cosco Shipping Services because of shorter route taken, no delays although higher insurance and higher wages and bonuses for Seafarers are required based on competitiveness.
https://www.voanews.com/a/no-sign-houthis-will-halt-red-sea-attacks-says-us/7418725.html
https://www.usip.org/publications/2023/12/houthi-attacks-red-sea-disrupt-global-supply-chains
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| The World Busiest Port / Biggest Shipping Hub |
https://gcaptain.com/suez-canal-toll-increase-to-boost-revenue-by-400-million-chairman-says/#:~:text=The%20Suez%20Canal%20Authority%20announced,cruise%20ships%20and%20LNG%20carriers.
https://www.cnbc.com/2022/12/04/manufacturing-orders-from-china-down-40percent-in-demand-collapse.html
2022 Cosco Shipping paid out a dividend of 3.2353 HKD per share.
2023 Cosco Shipping paid out a dividend of 2.10305 HKD per share
COSCO Shipping Dividend History
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| China Cosco Dividend Payout For Year 2022 |
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| China Cosco Dividend Yield |
I wish my readers all the best in their investing journey.
Disclaimer: All news, information and charts shared is purely by my research and personal views only. This is not a trading recommendation or advice but on the basis of sharing information and educating the investment community. Different traders and investors adopt different trading strategies and risk management approach hence if in doubt please approach or seek clarifications with your Financial Adviser, Broker and Banker.
