Monetary policy" is a Global issue in 2024

Monetary policy" is a Global issue in 2024

because the economic trend of the country has slowed down so the spending rate is easing. However, the market expectations seem to lead both the policy and economic policy which can be seen in the price of assets in the financial market that rises rapidly

If the monetary policy is not as relieved as expected, the fluctuation will occur. That is why we have to know what the current situation looks like, what will happen in the future and what is the expectation of the central bank. Will it be the opportunity or risk for the investor?

To begin with the Federal Reserve or FED Starting at the Federal Reserve or FED, the economy slows down, inflation rate is growing, the interest rates are requested to be reduced but still expect it to ease more.

Fed's latest economic estimates indicate that the year 2024 will be the year that FED begins to reduce interest 75bps by reducing interest 175bps in 2025-26.

In the economic aspect, US inflation is expected to slow down to less than 3% (the latest at 3.1%) from the end of the first quarter. However, the FED may wait for the unemployment rate to go up above 4% (the latest at 3.7%) which is reasonable to reduce interest rate. The first interest reduction is expected to happen in the meeting on 11-12 June 2024.

The fragile point of the US market is Bond and the shares that have brought the monetary policy. For now, The two-year-old US Bond Yield is falling from 5.2% to 4.3%, ten years Yield went up to 3.9% and the S&P500 index left long-term Earning Yield (LTEY) just only 3.3%. The chances of disappointment with FED are most likly to happen.

The second central bank is the ECB. The inflation rate is decreasing, the economy is likely to move backward. Although the interest reduction is not expect to reduce as much as Fed.

2023 is the year that inflation in Europe has reduced very quickly from the beginning of the year 8.0% to 2.8% next year. Next year is expected to be seen below 3.0%, while the big countries in Europe choose to use strict fiscal policies first. Therefore may not see a clear economic recovery

but with the trend of growth and inflation that decreased at the same time Financial relaxation It's not a difficult decision for ECB. Interest reduction can occur since the 7th round of the meeting, which will see inflation less than 2.0%.

Although the European Bond Market is accepted as quickly as the US. German Yield decreased to less than 2.0% from the up to 3.0% during October. But the Stoxx 600 index is not expensive. The EUR/USD moved up to 1.09 from the beginning of the year 1.06, reflecting that the market does not expect ECB to reduce interest. Fed the opportunity to be fulfilled.

The third is the Central Bank of Japan (BOJ), high inflation. no sign of increasing interest rates, the market reduces expectations with strict monetary policy.

From the economic aspect, financial strictness can occur at any time. Because the economy is not at risk And the average inflation this year until next year Expected to be stable at a higher level of 3.0%.

Time conditions Expected to stay after the negotiation of wages in the first quarter but with the policy going opposite with the central bank like FED and ECB, it may be possible that BOJ will wait to see the market after the big bank reduces interest first. Strict monetary policy adjustment may occur in the second half of the year 2024.

The ten-year Japanese Bond Yield abbreviated from the highest level of 0.9% down to 0.6%, reflecting the complexity of the monetary policy. The variable that signals the hope that BOJ will raise interest rates quickly is JPY that is rigid from a maximum of 6% to 142 JPY/USD, but still under 7% compared to the beginning of the year.

Finally, the Bank of Thailand which has the economy recovering but still faces deflation. Fortunately, the market does not expect much interest reduction.

Although Thai inflation trends will continue to go down from 2.2% at the beginning of the year to not more than 1.0% at this moment. It is clear that interest reduction can occur, but in 2024, the Thai economy must encounter uncertainty about fiscal policy.Therefore, the movement of monetary policy is expected to occur after the economy has changed clearly in the second half of the year.

However, the market doesn't seem to set much hope. It can be seen from the SET index that deceased to more than 15% this year. Two- year Bond Yield remains stable at 2.3% and the Baht at the end of the year is expected to close to the beginning of the year.

All of this, I look at the risks and opportunities in financial markets in 3 topics.

(1) If the US economy grows continuously, both stocks and US Bond have the opportunity to sell profit. From high expectations

(2) The market looks positive with EUR and negative with JPY because ECB doesn't have inflation problems so interest reduction can occur first and more chance to occur than anywhere else, while the BOJ is strict, the chances of JPY are getting stronger.

(3) With no expectations, the stocks and Thai Bonds may be assets that are more supported than usual. If the BAAC decides to reduce interest.

Dr. Jitphon Pruksamathanan