Kremlin's Deepening Ties with Iran and Dovish Central Banks

Hi all,

Welcome back to the SovereignBeat and our first publication in the new year!

We hope you had a great holiday season and wish you all the best in 2024. May this year bring peace worldwide and unlock economic opportunities for many countries still grappling with soaring debts and inflation.

Meanwhile, we are gearing up for an exciting year ahead and will have many thrilling updates for our readers in 2024—stay tuned!

In the first 2024 publication:

• Major bond markets rally

• Equity's standout perfomance in Q4

• Uncertainties in oil supply

• Anticipated central bank rate cuts

• Iran and Russia dump dollar

• Israel Destroys North Gaza

Let’s dive in.

Markets Snapshot

Debt Securities

• USA: A year-end 2023 shift in the interest-rate outlook triggered a turnaround in the government bond market, which had experienced substantial price declines and surging yields amid escalating inflation in 2022. The US 10-year Treasury yield has declined to 3.87% from over 5% in October as inflation continues to recede.

• China: Bond market rally extends into 2024, with 10-year sovereign notes yields dropping to 2.54%, the lowest since April 2020. This trend is fueled by the People's Bank of China's (Chinese Central Bank) injection of 800 billion yuan in December through the medium-term lending facility, and commercial banks subsequently cutting one-year deposit rates to 1.45% and three-year rates to 1.95%. The outlook for China's government bonds depends on the PBoC's policy decisions to support economic recovery. Despite heightened fiscal and monetary stimulus, China's economic recovery encounters challenges amid weak demand and a property crisis. The PBOC's policy considerations are further influenced by inflation data and the yuan's rebound.

Equity Markets

• Global stock markets had their strongest performance since 2019 after a rapid two-month rally in November and December of 2023. S&P 500 index has climbed 14% since October and 26.3% for the year, concluding the last trading day of 2023 just below its all-time record. The Nasdaq index has surged 43% in 2023, marking its best performance in two decades. The Dow gained 16.2%. Investors are banking on the belief that major central banks have concluded their interest rate hikes and will swiftly implement cuts in the coming year.

• However, stock markets recorded a slight decline in the first week of January, bringing an end to their nine-week winning streak. Investors grapple with mixed US data: private job growth, a drop in weekly jobless claims, and persistent profit-taking, while manufacturing data reveals a decline.

Oil Prices

• Crude oil prices rebounded to USD 78/barrel, driven by supply disruptions in Libya following protests leading to the closure of the Sharara oil field, impacting about 300 000 bpd. The oil market remains disrupted by factors like increasing global supplies, uncertain demand, geopolitical tensions in the Red Sea, and recent US Navy actions against Houthi boats attempting to board a container ship.

• European natural gas prices rose, with benchmark futures surging by up to 5.2%, reaching the highest level in a week. Despite Norway's current robust supply, strong liquefied natural gas (LNG) flows, and ample stockpiles stabilizing prices, the market faces uncertainty due to prolonged cold weather, delays in LNG vessel arrivals caused by adverse weather conditions, and tensions in the Middle East.