6 outrageous market predictions for 2024

Every year, at about this time, financial commentators take a stab at visualising the next 12 months (we brought you a wrap-up of some of them here).

In the following wire, we’ve attempted to turn some of these on their head, considering several outlandish possibilities. These are not serious forecasts but instead simple thought experiments. 

After all, who could have predicted any of the events that have unfolded since the first case of a mysterious strain of influenza virus was reported in December 2019.

The future is unknowable, as highlighted by how far off the mark even some of the more “sensible” 2023 predictions were. 

Henry Jennings, Marcus Today’s senior market analyst, reflected on the following during a recent chat: “Nobody spotted US$130 iron ore…Bitcoin at US$38,000…that NASDAQ risk [investments] would be a place to be.”

“Everyone was going for a tough year, recession, hard landing, rates killing the consumer – and we’ve seen the exact opposite of some of those things.”

Regardless, considering potential scenarios is a useful, thought-provoking exercise for anyone interested in financial markets.

Here in Australia, the ABS recently handed down fresh monthly data that showed the rate of inflation is declining more quickly than most economists expected. This means there is an even lower chance of another rate rise when the RBA meets for the final time in 2023 next Tuesday.

Though this data drop doesn’t rule out another hike when the RBA assembles again in February, the consensus view is that our central bank is only one or two hikes away from the end of its tightening phase.

What if rate hikes aren’t done?

What if interest rates keep running ahead and hit 7% in 2024? What would this mean for investors? I put these questions to Jennings.

“It would certainly be a very different environment, especially if you have US rates going down and our rates going up. That divergence would be very interesting as far as the Aussie dollar goes,” Jennings says.

He suggests such a move could see the local currency head back to 80 cents, “which would change the market dynamic considerably.”

“If you’re getting that for your deposit rate, then the banks are going to be interesting, to say the least,” Jennings says.

He overlays this with the nightmare scenario it would create for those with home loans, leading to an almost certain spike in bad debts.

“The long-awaited, much-anticipated mortgage cliff would become a chasm. That would obviously have a very detrimental effect on the economy,” Jennings says.

“The equity market would take that pretty hard, and it would further open up the opportunities for investing in the US as opposed to Australia.”

For the retail sector, Jennings emphasises the dual impact such a high currency would have. On one hand, it would create a tailwind for Australian retailers who import most of their products, “But on the other side, it would crush demand from consumers, so it would be a very different environment for the Aussie market.”

What if the RBA cuts much earlier (and more sharply) than anyone expects?

What if interest rates plunge back to 1%?

Jennings emphasises the strong tendency for the Australian market to be guided by the US, pointing to the monetary policy moves since last March as an example: “They led us in, and led us out.”

“We’ve got different factors at play, one of the biggest being our immigration, which is at elevated levels,” he says.

“We’ve got one of the only populations in the Western world that doesn’t have the demographic time-bomb everyone else has. On average, Australia’s population is getting younger, not ageing, because of immigration – and that’s clearly driving inflation.”

Jennings anticipates Australia will remain behind the US in ultimately deciding to cut rates and expects these will remain at or near current levels for a while yet.

“I think [RBA Governor] Michele Bullock is going to carry a big stick but not use it. I think she’ll wait and see how things turn out with the impending – if it ever happens – cliff with mortgage rates really hurting people.”

“The most likely scenario is that the RBA will keep rates high but on hold for some time to come, many even into the end of next year,” Jennings says.

A massive housing shakeup

Turning to another unlikely scenario – what if 2024 saw the launch of a sweeping bipartisan initiative to solve Australia’s intractable housing affordability problem?

Jennings says the prospect of a less dire outlook for home ownership, especially among the younger population, is “a nice thought…because it’s game over for many of them.”

He reflects on the very different climate of social agitation that exists now versus 40-plus years ago, when the younger demographic took to the streets in protest during the 1980s – most notably within the UK, Jennings' birthplace.

“The youth now seem to be passively lying down and remaining relatively happy, so long as they can get Taylor Swift tickets.”

Coming back to his earlier point, Jennings notes that a dramatic drop in our high immigration levels is one factor that could drive a step-change down in house prices.

A “very radical change in government policy” is another, he says, pointing out the lagging opinion polls for Prime Minister Anthony Albanese currently.

“We’re not that far away from an election and Albo’s honeymoon period is over. He’s certainly got to be seen to be doing something to try and alleviate the cost of living and the housing crisis,” Jennings says.

While noting that any change to Australia’s negative gearing tax structure is nigh impossible, Jennings wonders if the government might consider other ways to free up the housing supply.

For example, he suggests a potential extension of cuts to stamp duty – one of the biggest costs involved in buying a property – could encourage more downsizing to free up larger homes with only one or two occupants.

What if the dragon awakens?

Zooming out from the domestic view to a global scenario, China is another topic that regularly appears in corporate outlook statements. Most commentators expect China’s GDP growth to muddle along within the 2% to 4% range in 2024. But what if President Xi flicks a switch and economic growth ticks up again?

Jennings notes that Australia tends to fixate on China’s property sector while ignoring other parts of its economy – largely because of our exposure to the Middle Kingdom’s iron ore demand.

“But when you look at the rest of the Chinese economy, and investment within it, that’s not going too badly at all. It’s only property that’s holding it back,” Jennings says.

He suggests it is possible we will see a resurgence in China, pointing to the recent thawing of its relations with both Australia and the US and the potential for President Xi to try shifting China’s stance toward one of “peacemaker rather than warrior” in 2024.

“Commodities stocks are pretty down and dirty, but it wouldn’t take a lot for another spike higher in some commodity stocks, especially some of the second liners, which really suffered this year,” Jennings says.

He notes the continuation of the long-term global energy transition theme – even as electric vehicle demand in the US hits speed bumps given the higher costs versus traditional internal engine vehicles, range limitations and lack of charging infrastructure.

“But China is pushing ahead with world domination of the energy transition, with battery technology, with their cars, such as BYD (SHE: 002594) – and I don’t think that will change,” Jennings says.

“I think China will continue to stimulate in a focused way as opposed to a broad-brush stroke way, which they have in the past and which probably caused more problems than it solved.”

What about Europe?

What if the dire macroeconomic situation in Europe turns around, wrong-footing the many commentators who predicted a slide into “stagflation”? This could be spurred by a shock truce agreement between Russia and Ukraine, returning equilibrium to the crucial energy markets of the Eurozone.

Taking a different slant on this, MarketWatch recently considered what would happen if OPEC+ decided to battle non-OPEC suppliers by increasing production.

The cartel of major oil producers is expected to announce its latest oil production quotas at the end of this week – after its original meeting date of Sunday was pushed back.

“Saudi Arabia, which has implemented a voluntary reduction of 1 million barrels per day output from July to the end of this year, requested that other members of the group reduce their quotas, but some are resisting,” MarketWatch reported on Monday.

In an extreme scenario that has been modelled by BNP Paribas, if the group fails to reach an agreement, global oil supplies could climb by 3 million barrels.

“Under the BNP Paribas analysts' low-case scenario, harder-than-expected economic landings in Europe and the U.S., and continuously disappointing Chinese growth, sap oil demand, while non-OPEC supplies ramp up fast and OPEC unity is "too frail for additional cuts,” writes MarketWatch.

BNP Paribas suggests this would see Brent crude priced at between US$65 and US$70 a barrel – a level that would simultaneously lift demand and reduce the incentive to produce more.

But the BNP Paribas analysts say this would be offset by the US’s previously flagged intention to start replenishing its Strategic Petroleum Reserves when Brent crude hits these levels. This follows its 2022 sale of around 180 million barrels of oil from the reserve to keep prices in check.

All of this takes place in the context of a US presidential election year, with voters due to cast their votes in November 2024.

An outrageous prediction on US politics

This is another scenario cited in several 2024 outlook statements, including one issued by J.P. Morgan. 

It notes that caucus and primary voting will start on 15 January, and by 12 March, the final nominees will be named for the Democrat and Republican parties.

“There is a certain amount of apathy in the US, it's Biden versus Trump, we’ve seen that before and we know how it ends,” says Jennings.

“If you want an outrageous prediction for next year: Joe Biden will not run for president, but Antony Blinken will run…and he will win.”

Blinken, appointed by President Biden as secretary of state in January 2021, has previously served as deputy national security adviser and deputy secretary of state.

Noting that “he’s not even on the sports betting horizon yet” as far as Democrat nomination options go, Jennings says Blinken’s profile has been building, including social videos of him playing the guitar.

“There seems to be a backlash against traditional politics,” he says, suggesting someone like Blinken could provide the facelift the party sorely needs.

“Bidenomics generally has been quite successful for the US economy, with no hard landing despite the rate rises…they’re [the Democratic Party] probably not getting the credit that they deserve.”

While noting the poorly named Inflation Reduction Act hasn’t achieved what its name might suggest, Jennings says the policy hasn’t been a failure and lists some of the administration’s achievements.

“You've got US jobs figures that are close to record lows…inflation relatively under control and coming down, even though the gas price is okay. So, there's a lot of things that they've done well, but I just don't think they've sold it very well,” he says.

“They do have a bit of a credibility problem…Maybe they need a new salesman at the front to do that, maybe someone with a little bit of vitality and vigour.”