3 Things Daily - Copper Yearly Growth, Strong USD and UK Recession?

Hi there,

In today's edition, we delve into the key events influencing global markets and economies. 2023 has witnessed copper's value rising by almost 4%, underpinned by supply challenges and expected shifts in global monetary policies. Many anticipate rate reductions in developed countries next year, with both the Federal Reserve and the European Central Bank (ECB) likely to make cuts in the first half. Looking ahead to 2024, the UK economy is projected to avert a recession, with growth momentum anticipated in the latter part of the year.

– Matheus Zani & Daniel Porto

R&D Featured Article

FX Options 101: How to buy and sell FX options safely

In 2022, according to data from the Bank for International Settlements (BIS), FX swaps dominated the global turnover in the Over-The-Counter (OTC) FX markets at 51%, followed by FX spot trades at 28%, outright forwards at 15%, options at 4%, and cross-currency swaps at 2%. While forwards are favored for their simplicity and low upfront costs, the article highlights the limitations of potential Mark to Market (MTM) losses in volatile currency markets. It introduces FX options as a more flexible hedging tool, providing the right but not the obligation to buy or sell currencies at a predetermined rate. Options offer unique advantages, such as limited downside risk, versatility in strategy design, and the ability to participate in favorable market movements. The article explores option strategies like collars, participating forwards, and seagulls, emphasizing the importance of understanding the risks and benefits associated with options. Additionally, it discusses the role of technology, specifically platforms like Deaglo, in optimizing option strategies through simulation tools and AI-driven models that adapt to different market regimes. The integration of options into hedging strategies is presented as a nuanced approach to managing currency risk in diverse market conditions.

2. Anticipated Rate Changes and Their Impacts on Global Markets

There's a widespread belief that rates in developed nations will decrease next year, with expectations of similar cuts from both the Federal Reserve and the European Central Bank (ECB) in the initial half. However, the ECB might need to adopt a more aggressive easing stance. This could lead to a stronger dollar in upcoming months, impacting various asset classes. As this story unfolds early next year, the dollar is anticipated to rebound from its recent decline. This shift will pose challenges for gold and emerging market investments. Conversely, the trend of lower rates is likely to bolster stock markets, especially in the US.

3. UK Economic Outlook for 2024: Growth Predictions Amid Cost-of-Living Relief

In 2024, the UK economy is expected to sidestep a recession and gain momentum in the latter half. This optimism stems from consumers experiencing reduced inflation and a gradual alleviation of prolonged cost-of-living challenges. A survey conducted by Bloomberg, involving 52 economists, forecasts a modest annual growth rate of 0.3%.

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