Despite all the criticism of the United Nations Climate Change Conference (COP28) in Dubai, the 13 December agreement, which was adopted by nearly 200 countries, will have implications for investors.
First, the agreement recognises that nuclear energy can be a solution as we transition to a low-carbon economy, and it aims to triple nuclear capacity by 2050. In this regard, it’s worth remembering that we removed nuclear energy from our exclusion list at the start of this year. Second, countries have agreed to triple their renewable energy capacity and double the rate of energy efficiency improvements by 2030. And lastly, it’s the first time this kind of agreement includes a call for a gradual, fair, orderly and equitable transition away from fossil fuels. This marks a first small step in the right direction after the war in Ukraine raised doubts over countries’ energy security. But this agreement will only make history if it’s translated into action. In any event, it clearly shows that not one solution alone can meet the climate challenges we face. It also reaffirms the regulatory, environmental and financial potential of the climate transition process over the term.
The US Federal Reserve (Fed) continues to set the tone for monetary policy. It was the first central bank to raise rates in March 2021, and all other major central banks, particularly in Europe, followed by. All the signs suggest that it will be the first to reduce its interest rates. The statement by Fed Chair Jerome Powell left no doubts. The Fed is getting ready to change the course of its monetary policy, and its next step will be to lower rates. In fact, Powell hinted that there would be three rate cuts of 0.25 bps in 2024, with the first perhaps taking place before June. The reason given for this change in course is the major progress made in the fight against inflation – the slowdown in consumer price growth has now spread beyond goods and is starting to affect services as well. The Fed’s very accommodative tone came as a surprise to many economists. In less than three months, the Fed has made an about-turn, switching from a hawkish tone to a much more dovish stance.
Central banks in Europe seem less willing to make such a radical move if they’re not facing down a crisis. The Swiss National Bank, for instance, has decided to keep its monetary policy unchanged even though inflation is on target, at 1.4% year on year, and the Swiss franc is very strong. It’s not planning on cutting rates anytime soon. The same is true for the European Central Bank and the Bank of England – both have said it’s too early to think about loosening monetary policy.
But investors care much more about what Jerome Powell has to say, and stock market indexes jumped to new highs after his statement. The bond market also did well, with prices rising across all segments (in terms of duration and credit quality). In less than two months, the US stock market has gained nearly 15% and 10-year USD yields have dropped from 5.0% to 3.9%. This could be a sign that investors are becoming too complacent as the year draws to a close.
That’s the day the SEC will decide whether to approve a series of bitcoin ETFs. Bitcoin has risen sharply since October – a sign that expectations are riding high.