Inflation and US Presidential Election to Shape 2024 Market Dynamics

In the landscape of global markets, inflation, and the upcoming United States presidential election are anticipated to be the major influencing factors this year. A recent survey conducted among traders by JPMorgan has highlighted these areas of concern. Traders are keeping a keen eye on inflation, with around 27% believing it will significantly affect the market, while 20% expect the November presidential election to have considerable impact. Last year ended with a surge in bond and equity markets, fueled by expectations that diminishing inflation would lead toward substantial central bank rate reductions. Those expectations have since moderated in light of robust U.S. job data that prompted a notable decline in U.S Treasuries — the steepest since September.

US Presidential Election and Market Volatility

The drumbeats of the 2024 U.S. presidential election are growing louder, with markets preparing for potential volatility. The spotlight shone on former president Donald Trump following his victory in the New Hampshire Republican primary, signaling the possibility of a heated contest against incumbent Democrat President Joe Biden. JPMorgan’s chief in digital markets, Eddie Wen, implied that markets might experience short-term fluctuations given the scrutiny on macroeconomic factors such as the U.S. employment and inflation figures.

Shift in Recession Sentiment and Geopolitical Concerns

Waning are the tides of recession concerns that once dominated trader surveys where they now sit in third place, chosen by 18% of respondents, amidst evidence of economic performance surpassing initial forecasts. However, geopolitical instability continues to pose risks, particularly in Europe, as the conflict involving Russia and Ukraine enters a new phase, and in the Middle East, where tensions between Hamas and Israel are under watchful eyes. Yet, while volatile markets remain a concern for traders, the degree of apprehension has lessened compared to the previous year.

Liquidity: A Rising Issue for Traders

Liquidity is moving to the forefront of traders' challenges, now more than ever, as confirmed by 24% of traders in the survey — a small yet telling increase from the previous year. Chi Nzelu, a top figure at JPMorgan in macro e-trading, stresses that consistent liquidity from a wide range of sources is growing in importance for investors, especially during unpredictable market periods. Credit market and cash equity traders particularly emphasize this, citing liquidity access as their foremost challenge. Wen noted the complexities evolving in credit market structures, with an increase in trading platforms for corporate bonds and the rise of electronic executions of large block trades. Deciding the optimal trading mechanism stands as a crucial deliberation for market participants.

Inflation, Election, Liquidity