The pursuit of prediction verification is like a game, because rare and catastrophic extreme events are unpredictable. Therefore, it is better to approach accepting in advance the reality of market risks and to prepare for their possible appearance.<\/p>\n\n\n\n
1. Expansion of the conflict in the Middle East<\/strong><\/p>\n\n\n\n After the Hamas attack on Israel on October 7, many observers are concerned about an escalation of the conflict, involving other nations in the Middle East. Such an eventuality could have an impact on energy markets, causing shocks in oil prices, which, in turn, could increase the risk of a recession for vulnerable economies. Although most observers are “agnostic” about the risk of markets being at the center of a financial crisis, the situation depends on what role Tel Aviv will play in any ground or air conflict.<\/p>\n\n\n\n 2.<\/strong> Extension of Ukraine-Russia conflict<\/strong><\/p>\n\n\n\n Any prolongation in the conflict between Ukraine and Russia could affect energy and food markets, which, in turn, could increase the risk of recession especially for European countries.<\/p>\n\n\n\n In September, the European Central Bank (ECB) revised down its forecast for Gross Domestic Product (GDP) growth, particularly for this year and next, “due to the impact of tighter financing conditions and a weakening international trade environment.” It now expects the economic bloc’s economy to grow by 0.7% in 2023, 1.0% in 2024 and 1.5% in 2025.<\/p>\n\n\n\n 3.<\/strong> Resurgent inflation<\/strong><\/p>\n\n\n\n Inflation has eased significantly from 2022 highs in both Europe and the US, but upside risks remain.<\/p>\n\n\n\n However, energy prices can be volatile, [so] they can easily rise again in the coming months. If inflation spikes again, central banks will be forced to raise interest rates, despite market expectations for a cut sometime next year. This could affect corporate profits and increase the risk of a recession.<\/p>\n\n\n\n 4. Developed market deficits<\/strong><\/p>\n\n\n\n Due to rising debt levels, investors demand increased term premiums or compensation for the risk of holding bonds issued by developed markets. In other words, they are looking for higher returns. In addition, central banks are no longer reinvesting the proceeds of maturing bonds under quantitative tightening, and investors are struggling to digest a flood of new bonds. In this scenario, long-term yields are expected to return to higher levels, while prices will decline.<\/p>\n\n\n\n 5.<\/strong> The unpredictable results of the elections<\/strong><\/p>\n\n\n\n There are two important elections in 2024: in the UK and the US. The direction in which the wind blows on fiscal matters and applied policies could determine the course of the markets.<\/p>\n\n\n\n Past experience of this kind of “risk” shows that big changes can cause a discount in the so-called risk assets – stocks and corporate bonds. Meanwhile, government bonds tend to act as a store of value because the long-term financial stability of the governments themselves is not necessarily at stake. There are, however, notable exceptions to this rule that should always be considered.<\/p>\n\n\n\n 6.<\/strong> Bursting of the real estate bubble and China’s growth crash<\/strong><\/p>\n\n\n\n Global growth in 2023 was ultimately not boosted by China’s growth. One of the main reasons is the real estate crisis, because real estate represents between 15% and 30% of the US GDP. Economic weakness will be a challenge in 2024. If China’s economy stagnates or collapses, the risk of recession increases for trading partners as well.<\/p>\n\n\n\n 7.<\/strong> The risk of a China-US conflict remains<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" The pursuit of prediction verification is like a game, because rare and catastrophic extreme events are unpredictable. Therefore, it is better to approach accepting…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[859,5],"tags":[1053,3918,1764,1054],"class_list":["post-16767","post","type-post","status-publish","format-standard","hentry","category-economics","category-economic","tag-bonds","tag-markets","tag-risk","tag-stocks"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/16767","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16767"}],"version-history":[{"count":1,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/16767\/revisions"}],"predecessor-version":[{"id":16769,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/16767\/revisions\/16769"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16767"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16767"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16767"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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