Are the Political Winds Shifting in Favour of Bond Investors?

Economic

Summary:

Jenna Barnard, Co-Head of Global Bonds, believes markets are pricing in a sanguine outlook for the global economy in 2025 but political upheaval may lean in favour of bonds.

Monetary policy divergence

For bond markets in 2025 the synchronous global inflation shock of 2021-22 will be receding even further into the distance whilst the divergent effects of US tariff threats will likely be at the forefront of investors’ minds.

The former (inflation and its subsequent retreat) was always going to generate a greater degree of monetary policy divergence across central banks and has indeed been reflected through individual country performance in 2024. It is worth reflecting that the experience of central banks cutting and hiking almost in unison in the years 2020-22 was a historical aberration and more differentiation is something of a return to normality.

The latter (US tariffs), if large enough in scale, has the potential to cause a profound new macro shock i.e. to catalyse disinflation and a negative growth impulse outside of the US versus an inflation shock within the US. At the time of writing, the threat of across-the-board global tariffs is not the base case in any of the outlooks from investment banks nor reflected in the pricing of bond markets. All have assumed relatively modest tariffs outside of China, i.e. that President Trump is more concerned with using tariffs as a stick to drive transactional agreements and hence result in muted tariff outcomes following negotiation. In contrast, the President’s actual statements on tariffs, going all the way back to the 1980s, reflect a deeper-held belief. That the global trading system has been detrimental to the US and needs fundamental realignment via meaningful across-the-board tariffs, with a particular focus on a strategic decoupling from China. Which approach President Trump chooses to take, for which countries, will be critical for individual bond markets in 2025.

Fiscal winds shifting

The 2020 US election coincided with the publication of Stephanie Kelton’s book “The Deficit Myth” and central bank concerns about a structural undershooting of inflation targets over the preceding decade. The 2024 election sees the exact opposite backdrop: too high consumer prices as a dominant popular concern and a hunt for cost savings to fund existing tax policies.

In the Eurozone, another year of negative fiscal impulse has been proposed in budgets submitted to the European Commission (approx. -0.4% for 2025 versus -1.0% in 2024). In China, there is some hope of genuine stimulus in 2025 as the recent US$1.4trillion swap of local government for federal government debt was a disappointment to many expecting proactive growth enhancing measures.

Meanwhile, in the US, Trump’s fiscal plans centre around an extension of existing tax policy, which is not a new fiscal impulse for growth and inflation but rather the status quo. The tightest percentage majority in the House of Representatives since the 1917-19 Congress acts as a severe constraint to additional tax cuts without offsetting cost cuts. No doubt, governments continue to labour under enormous debt loads, which can serve to crowd out the private sector (the UK is a great example of this) but the marginal newsflow is quiet on the fiscal front.

Interest rate reference points

This leads us to a recap of the underlying yardsticks by which bond investors will make their judgements on likely interest rate moves and forward bond returns. These continue to be driven by two key economic statistics. The first is core inflation, with a particular focus on what central banks judge as the best measure of domestically driven inflation i.e. core services inflation. This measure will always lag the decline in headline inflation that has been seen across the world (driven by weak commodity prices and year-on-year base effects) but some countries have made far better progress than others. The chart below highlights the progress made in different countries.

Are the Political Winds Shifting in Favour of Bond Investors?_1

The second statistic to which bond markets are always highly attuned is unemployment. Again, the heady days of the post pandemic hiring binge (2021-22) are long gone and a degree of slack or softening (which is verging on worrying) is a common feature across the developed world. In Canada, the rise in unemployment from 4.8% to 6.8% has already driven one of the most aggressive interest rate cutting cycles in 2024 with 175 basis points (bp) of rate cuts in just over six months. In contrast the US and the Eurozone have cut by 100bps versus the UK by 50bps.

Are the Political Winds Shifting in Favour of Bond Investors?_2

In summary, bond markets are priced for moderate interest rate cuts as central banks take their time getting rates back to what they deem neutral territory amidst expected soft landings across the developed world. In contrast, the political world is braced for the upheaval and chaos of Trump’s second term. Should the latter come to pass, bond returns in a number of countries could end up being positively exciting for investors.

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SAXO

Economic

Commodity

Gold and silver investors are increasingly turning defensive ahead of year-end as they seek to protect and lock in gains following a very strong year. This year has seen gold’s record-breaking rally deliver the best annual return since 2010, while silver has managed to keep up with gold, reaching a 12-year high during the October run-up to the US presidential elections.

Both metals currently trade up more than 27% on the year—a very impressive performance considering the headwind from a stronger dollar, which has climbed more than 6% against a basket of major currencies, currently on track to record its best year in a decade. In addition, US bond yields have been rising despite the start of a rate-hiking cycle, amid worries about fiscal instability as governments—particularly in the USA—continue to spend money they do not have, leading to an increased debt burden.

Note below, the strong correlation between a rising yield gap between the US and Europe and the weaker euro against the dollar. In the short term, relative US yield strength, and investor demand for US equities, may continue to limit gold and silver’s upside potential as it drives the dollar higher.

Investors Cash in: Gold and Silver See Year-end Profit Taking_1

While the US rate-cutting cycle began in 2024, the prospect of aggressive cuts began to deflate almost as soon as the first cut was delivered back in September. From an expected December 2025 low around 2.75%, the Fed Funds futures market is now pricing in fewer than three additional cuts, including the one the FOMC is expected to deliver this Thursday, to around 3.9% by this time next year.

So why have precious metals, despite these apparent headwinds, been doing so well in a year that has also seen equity markets perform very well, albeit concentrated in a few (US) megacap stocks?

One year ago, when we wrote our Year of the Metals 2024 outlook, we foresaw gold and silver prices trading higher on a combination of US recession risks and falling inflation, leaving the door wide open to rate cuts. Additionally, these metals were already being supported by safe-haven bids following the October 2023 Hamas attack on Israel and Houthi rebels attacking ships in the Bab el-Mandeb Strait, thereby reducing shipping traffic through the Red Sea. On top of these factors, central bank buying was expected to continue due to a diversification focus away from the USD and US Treasury bonds.

Investors Cash in: Gold and Silver See Year-end Profit Taking_2

While a US recession failed to materialise and US rate-cut expectations faded, most of the developments that have supported these strong gains are unlikely to fade anytime soon and, therefore, will continue to support prices of both metals into 2025. They are several, and while we have mentioned most already, here is a quick summation:

Central bank buying to diversify holdings away from the US dollar and government bonds.Interest rate cuts reducing the "cost" of holding gold compared to investing in secure short-term government bonds.Sticky inflation emerging as a theme, helping to offset the potential negative impact of reduced rate cut expectations.Safe-haven demand amid a fractured world with unresolved conflicts in the Middle East and Russia-Ukraine, along with risks of trade wars and tariffs lifting inflation in 2025.Chinese investors turning to gold amid record-low savings rates and property market concerns.Concerns over fiscal instability as governments around the world increase debt burdens, not least in the US as President-elect Trump rolls out his radical and high cost policies.

All in all, these developments may continue to play an important role into 2025 and beyond, thereby providing precious metals with enough support to reach fresh highs in the coming year(s). With this in mind, we see gold reaching USD 3,000 next year, representing a 10% gain from current levels, while silver, supported by tightening supply and tailwind from industrial metals, may do even better. Based on the XAU/XAG ratio returning to 75 (ounces of silver to one ounce of gold) from the current level around 85, we could see silver targeting USD 40, representing a 25% upside.

Will gold and silver see another Santa rally?

This headline was given to an article I wrote a year ago in response to data that showed gold and silver had both seen strong December rallies in the previous six years. As it turned out, silver failed while gold went on to record a small 1.3% gain to end 2023 at USD 2,062. Fast forward and halfway through the month chances of a repeat have diminished, and while the fundamentally supportive outlook into 2025 in our opinion has not changed significantly, another positive month of December is currently being challenged by dollar and yield strength and the temptation to reduce positions following a record-breaking year. Investors Cash in: Gold and Silver See Year-end Profit Taking_3

Investors Cash in: Gold and Silver See Year-end Profit Taking_3

Investors Cash in: Gold and Silver See Year-end Profit Taking_4

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Pepperstone

Economic

Over the past year, Chinese authorities have made tangible efforts to stabilize the real estate market, maintain financial system stability, and address local government debt, though structural challenges like aging demographics and unemployment remain prominent.

While risk assets such as the Hang Seng Index and CN50 initially benefited from policy support, the lack of detailed measures has led to tempered expectations, limiting the sustainability of bullish momentum.

2025 China Market Outlook: Boosting Consumption, Steady Progress_1

As 2025 approaches, markets are now positioning for what lies ahead. Key questions include: Will there be a shift in policy focus? What economic challenges will China face? What potential measures might authorities adopt? And could mainland and Hong Kong stocks witness a stronger recovery?

Moderate Easing, Proactive Stimulus, Boosting Consumption & Increasing Deficit

The year-end Politburo and CEWC meetings traditionally set the tone for the following year’s policies. The emphasis on "enhancing extraordinary counter-cyclical adjustments, implementing moderately accommodative monetary policy, and more proactive fiscal measures" signals stronger-than-expected stimulus.

The term "moderate easing" in monetary policy—used for only the second time in 14 years—recalls the 2008–2010 period when China countered the global financial crisis with measures such as monetary expansion and a ¥4 trillion investment plan. These policies drove a short-term economic rebound, pushing the Shanghai Composite up 80% during the stimulus window. However, as the crisis impact faded and the side effects emerged, policy shifted to "prudent" in 2011.

This time, "moderate easing" is paired with “proactive fiscal policy,” an unprecedented dual-loosening stance from the Politburo. Expectations for stabilizing the stock and property markets and driving structural reforms have also been communicated effectively.

At the CEWC, notable shifts were seen in key areas. First, "boosting consumption" was prominently emphasized—only the second time in the last decade (the first being 2022). Notably, consumption now takes precedence over “investment returns” and “domestic demand,” with measures such as trade-in programs, lower borrowing rates, and demand creation in infrastructure and renewable sectors.

Second, "raising the fiscal deficit ratio" was revisited for the first time since 2015, with the removal of "temporary" language indicating a firm commitment.

Overall, the meetings suggest authorities will adopt a dual-easing approach in monetary and fiscal policy, addressing key economic pain points in consumption and real estate while managing market expectations.

China-U.S. Trade Relations: The Elephant in the Room

Despite the easing signals, China’s market reaction—similar to the post-Golden Week and post-Trump election periods—was brief. The lack of approved execution budgets ahead of the March National People’s Congress offers partial explanation, but unresolved tariff issues remain a significant overhang, increasing uncertainty for Chinese risk assets.

Expectations of rising tariffs could front-load exports, potentially boosting Q1 GDP. However, prolonged trade barriers would directly hit exports and indirectly impact consumption and investments tied to export-related sectors.

The enduring tensions between the two economic giants are a pivotal factor shaping 2025 market dynamics. Growth forecasts for China hinge heavily on tariff scenarios and the government’s policy response.

Trump’s proposal for a 10% tariff—less extreme than the 60% floated during his campaign—has traders viewing the differences in timing, magnitude, and China’s countermeasures as key negotiation levers.

Rather than preempt US moves, China tends to respond post-implementation. To stabilize domestic growth, potential measures include devaluing the yuan to support exports, cutting reserve ratios and interest rates, increasing monetary supply, and boosting fiscal deficits to drive domestic demand. Additionally, China may retaliate by imposing tariffs on US imports.

Should tariffs fuel U.S. inflation, combined with Trump’s restrictive immigration policies challenging labor markets and growth, China’s policy resilience could become relatively more attractive.

Balancing Act Ahead

Looking ahead to 2025, China faces two key questions: the two key issues for China’s economy are policy direction and U.S. tariff risks. The central issue is whether policymakers have reached an “whatever it takes” moment.

In my view, the answer is no. While a series of stimulus measures have been introduced since late September, the emphasis on “promoting stability through progress” at year-end meetings indicates that maintaining market stability remains the top priority. Instead of over-stimulating, China’s task next year will be to strike a delicate balance.

China’s current growth relies heavily on exports and industrial production, while real estate and consumption remain weak. Authorities must consolidate existing strengths while stimulating domestic demand and other sectors. The PBoC may expand its balance sheet, purchase government bonds, and direct funds toward consumption, real estate, advanced manufacturing, and public welfare.

2025 China Market Outlook: Boosting Consumption, Steady Progress_2

Second, balancing US-China trade relations and the yuan’s exchange rate. While yuan devaluation could support exports, it risks higher import costs, imported inflation, and capital outflows, jeopardizing sustainable growth. A comprehensive policy mix is needed, including boosting consumption, supporting services and advanced manufacturing, nurturing new growth engines like renewables, and diversifying trade partnerships to mitigate external risks.

Stimulating consumption remains key to achieving balance and growth. However, beyond trade-in programs for goods, stronger consumption of discretionary items depends on confidence in future income and economic prospects. Structural challenges—such as deflation, hidden local debts, high property inventories, and an aging population—mean market confidence cannot be rebuilt overnight.

If the fiscal deficit ratio increases from 3% to 4% of GDP in 2025, it would require approximately ¥1.32 trillion in new government bond issuance. This could prompt the Ministry of Finance to issue ultra-long-term special bonds and local government special bonds to address these challenges. Traders will need to see tangible economic improvements in data to fuel sustained bullish momentum in A-shares and Hong Kong stocks.

Staying Vigilant, Remain Flexible

In conclusion, China’s economy stands at a critical juncture, facing domestic structural challenges and external tariff pressures. The effectiveness of policy measures will be key, though their outcomes remain uncertain.

2025 is set to be a highly volatile market for China. For traders, staying vigilant, flexible, and ready to adapt to market shifts will be crucial to identifying opportunities and managing risks.

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Goldman Sachs

Energy

Economic

As the transition to a low-carbon economy shows signs of slowing, investors are making adjustments. While they’re still focusing on technologies that may emerge as winners in a greener future, their focus on large incumbent companies and how they're managing their own green transition has increased, says Goldman Sachs Research’s Michele Della Vigna.

Della Vigna and his team recently examined the roughly $75 trillion in investment that is estimated to be required to bring global net carbon emissions to zero by 2070. Global carbon emissions have risen higher than previously expected, and the goals set out in the Paris Agreement are unlikely to be achieved. But an ambitious path to containing temperature increases to 2 degrees Celsius of pre-industrial levels may still be attainable, according to Goldman Sachs Research.

How Investors Are Adjusting to A Slower Green Transition_1

At the 5th Annual Carbonomics Conference convened by Goldman Sachs in London in November, companies and investors showed a growing understanding that the path to net zero will take longer than once believed.

“When we did the first Carbonomics conference, there was a lot of top-down discussion of how we reach a Paris-aligned scenario,” says Della Vigna, the head of Natural Resources Research in EMEA in Goldman Sachs Research. “Now investors and companies are focusing on a bottom-up view to find specific clean tech investments that can deliver returns above the cost of capital, and that can be financed.”

Interest in clean technology investing has not waned, Della Vigna says. The strong attendance at the Carbonomics event, which attracted 30 CEOs, key policymakers, and more than 1,000 investors, is one indication of that, he says. We spoke with Della Vigna after the conference about the forecast for peak oil consumption, the outlook for incumbent energy companies, and how the energy transition is unfolding around the world.

How are investors shifting their view of large producers of hydrocarbons?

Investors are realizing that hydrocarbon demand is likely to grow for decades to come. We have pushed back peak oil demand to the middle of the next decade in our most recent report on the path to net zero carbon emissions. We also have pushed back peak gas demand to 2050. That means we need greenfield oil and gas development beyond 2040, which is very different from how some investors have been thinking about it.

Oil and gas producers will need to innovate to discover new fields and to lower decline rates. They will need to use technology such as digitalization and generative artificial intelligence to improve their ability to do these things.

I also think it’s becoming more important to continue to reduce the direct emissions in the industry — limiting methane emissions and flaring, for example. This is a huge focus for the industry, and it’s a huge differentiator in the minds of investors.

Have expectations changed about which oil and gas assets might become stranded?

I think some analyses about stranded assets were based on extremely unrealistic assumptions. The debate is shifting from concern about stranded assets to worries about insufficient availability of assets to provide the world a stable supply of hydrocarbons.

When we looked at our database of the world’s largest oil and gas developments in our annual Top Projects report, we reached a concerning conclusion: That the industry’s reserve life for oil has halved in the last decade. Also: Non-OPEC production will peak in 2027. Unless technological innovation and increased investment unlocks more resources that come on stream before the end of this decade, we are going to have a very tight market. We are going to consume OPEC’s spare capacity very fast.

What is the biggest motivator for clean-tech investors right now?

Investment in this area is always driven by both market dynamics and regulation. Two years ago, with the introduction of the Inflation Reduction Act (IRA) in the US, we had the most substantial policy support for clean technology in history. Investors got super excited about the regulatory support.

The recent US elections threw some cold water on that thinking. Now there is a greater focus on which technologies are evolving fast enough and moving low enough on the cost curve that they stand on their own financial merits even if some incentives end up changing in the coming years.

What rises to the top when you think about investments this way?

Solar, without doubt. Onshore wind, probably, but not offshore. Batteries and everything that has to do with electrification and grids. That’s because there is tremendous demand growth there, driven by data centers and broader economic growth and population growth. Those are clearly areas that are working.

There are a couple of other places where we’re seeing good development. Carbon capture is becoming more and more widely used, on both sides of the Atlantic. Biofuels, having suffered a really difficult year, are starting to recover and to see better demand in North America and in Europe.

What’s boosting carbon capture and biofuels?

These technologies are needed in an energy transition where emissions will continue for longer. For cleaner industrial processes, electrification and clean hydrogen are taking a little bit longer. Therefore, we need carbon capture to retake some emissions from those plants. In transport, internal combustion engines will probably stay around for longer. Therefore, if we want to decarbonize, we need to blend more biofuels. Both these technologies work on existing infrastructure and don’t require a complete rethinking of the current setup for heavy industry and heavy transport.

How do you explain increased investor interest in large incumbent companies in energy, materials, and other sectors?

There’s a growing realization that the green transition will take a long time. And because of that, it’s important to be invested in companies in transition, rather than just looking for the end game. There’s also an understanding that unlocking capital at large scale from these companies is key in order to finance the $2-$3 trillion in infrastructure investment that will be needed if we want to achieve net zero carbon.

These large companies are demonstrating capital efficiency. They're looking at their capital allocation across more traditional investments and some clean tech investments, and they're trying to balance the two to continue to deliver a double-digit return. That’s something a lot of the pure-play companies in green technology have really struggled to do.

How is this type of investment unfolding differently in the US and Europe?

The US has some big advantages. There is economic growth, and very supportive regulation that is leading to tremendous investment. We estimate the IRA has unlocked something around $800 billion of new investment in two years.

Europe is a more challenging environment. But at the same time, the advantage of Europe is: Being a major hydrocarbon importer, it makes more and more sense to shift the energy network to be more locally supplied and renewables-based. If Europe could find stable regulation and access to capital, the green transition could become a tremendous investment that would really strengthen the region and provide a lower-cost energy supply.

You cite the boost that clean tech in the US gets from the IRA. Does the outcome of the election erode that?

It’s very rare for a government to reverse or unwind a package of incentives like that, even with a change of majority. Our view is that most likely the IRA stays in place. It may be applied more tightly, especially with some of the more marginal technologies, but we believe the bulk of it will remain in place.

A lot of money under the IRA has gone to red states. Texas, for example, is actually becoming the clean-tech capital of the world in many ways, thanks to these incentives and a very efficient permitting system in the state. We believe the IRA will continue to lead to development and job creation in the US.

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JPMorgan

Economic

As Paul Krugman famously stated in 1990, “Productivity isn’t everything, but in the long run it is almost everything.” By boosting productivity, an economy can enhance its standard of living by producing more with the same or fewer resources. In essence, productivity is a key driver of economic prosperity.

Before the pandemic, U.S. productivity growth had been declining since the mid-2000s. However, since late 2022, productivity has been growing at an encouraging rate. The Fed is also taking notice, revising its potential GDP growth assessment upward due to these gains and exploring the factors behind this growth.

The key question remains: is recent growth sustainable?

Productivity is notoriously difficult to explain and measure, and its drivers can take time to become evident. However, we can consider a few theories:

The pandemic caused “creative destruction”

More than 320,000 U.S. businesses permanently shut down in the second quarter of 2020. While these businesses were not necessarily unproductive – just ill-positioned for a pandemic – the ones that came roaring back were likely the strongest of the pack. Per Joseph Schumpeter’s theory of creative destruction, the pandemic may have shifted the economy towards more productive businesses, paving the way for newer, innovative ventures. New business formation surged post-pandemic and remains historically elevated.

The fruits of technological investment—the traditional kind

The U.S. is undoubtedly the tech hub of the world, and while generative AI has captured excitement, it’s unlikely driving productivity gains just yet. Instead, more traditional investments in automation seem responsible. Since 2012, business investment in intellectual property and R&D has steadily increased, and a modernized capital stock can lead to all sorts of new business applications that enhance efficiency over time. Indeed, Dao and Platzer (2024) found that recent productivity gains have been concentrated in high-skill and IT-intensive sectors that saw a surge in digital investment pre-pandemic, further accelerated with the shift to telework.

The AI capex boom suggests further potential. The “Mag 7” tech companies are expected to spend more than $500 billion in capex and R&D next year, before considering adjacent spending on semiconductor designer & manufacturers, data centers, cooling technologies, and energy and utilities. Investments in full AI value chain could reach over $1 trillion by 2030, surpassing the entire U.S. defense budget.

Work-from-home and the Great Reallocation of workers

Post-pandemic job churn suggests increased labor dynamism and job matching, which has boosted output-per-worker in most impacted industries—particularly those incorporating telework.

The true drivers of productivity growth will only become clearer with time. While it may be too soon to credit AI, the timing is fortuitous as capex and innovation underway suggest potential for further acceleration. For the Fed, debate surrounding the drivers and durability of productivity gains will continue to be important in policy deliberations. Higher potential growth would justify a shallower easing cycle, as a more prosperous economy might sustain both higher interest rates and wage growth, without sparking inflation.

Ahead of a potential AI boost, labor productivity growth has been on an encouraging path

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ACY

Economic

The Bank of Japan’s Shift Towards Tightening

The BoJ has recently adopted a more austere monetary policy stance, marking a significant departure from its previous efforts to maintain ultra-low interest rates. By raising rates, the central bank aims to temper inflation and align with global trends. However, this strategy is proving problematic in Japan’s unique economic environment.

For one, Japanese households are particularly sensitive to rising interest rates due to the nature of their financial system. Unlike in the U.S., Japanese mortgages are typically recourse loans, meaning borrowers are fully liable for their debts. This system, combined with Japan’s historical experiences of real estate market declines, has instilled a deep-seated financial conservatism among households. Consequently, the BoJ’s rate hikes have triggered widespread concerns about future mortgage costs, deterring consumption and contributing to economic slowdown.

Household Spending: The Core of the Challenge

Household consumption, a key driver of Japan’s economy, has been under significant strain. While wages have risen modestly, they have not kept pace with the rising cost of living, largely driven by higher import prices. As a result, real consumption remains 0.8% below pre-pandemic levels, a stark reminder of the lingering effects of the COVID-19 crisis.

Moreover, households are prioritizing savings over spending, seeking to rebuild financial stability amid uncertain times. This defensive behaviour, while understandable, has far-reaching implications for the economy. Lower consumption dampens demand, which in turn stifles growth and risks a return to deflation—a persistent issue that Japan has struggled to overcome since the 1990s.

The Role of Fiscal Policy: Government Measures to the Rescue

In response to these challenges, the Japanese government has stepped up with ambitious fiscal measures. By the end of 2024, it plans to implement a JPY 21.9 trillion economic stimulus package aimed at countering the risks of deflation and sustaining inflation targets. This marks a stark shift from the austere fiscal policies of previous years under Haruhiko Kuroda’s tenure at the BoJ.

However, the misalignment between fiscal and monetary policies remains a critical issue. While the government is loosening its purse strings to spur growth, the BoJ’s rate hikes risk undermining these efforts. This disconnect underscores a long-standing problem in Japan’s economic policymaking: the difficulty of achieving a harmonious policy mix.

Corporate Investment and Business Sentiment: A Silver Lining?

Despite the challenges facing households, corporate Japan is showing resilience. Large enterprises have increased fixed investment plans, buoyed by optimism about a more robust nominal GDP. The Tankan survey for Q4 reveals steady business sentiment among large manufacturers and non-manufacturers, driven by strong exports and a depreciated yen. However, sectors such as retail, accommodations, and food services are struggling, reflecting weak domestic demand.

The Path Forward: A Balancing Act

Looking ahead, the outlook for 2024 is clouded by forecasts of negative GDP growth. Both domestic and international observers, including the OECD, project a contraction in real GDP, with consumption remaining weak. To counter this, policymakers face mounting pressure to recalibrate their strategies.

With Upper House elections on the horizon, the government is likely to intensify its stimulus efforts. Additional measures may focus on bolstering household incomes, addressing structural wage stagnation, and incentivizing consumption. At the same time, the BoJ will need to reassess its approach to rate hikes to avoid further exacerbating economic vulnerabilities.

Japan’s economic challenges in 2024 reflect a complex interplay of global and domestic factors. While the government’s fiscal measures provide hope, the misalignment with monetary policy poses significant risks. The coming months will be crucial as policymakers strive to navigate this delicate balance and steer the economy away from deflation and stagnation.

For Japan, the road ahead requires not just immediate policy adjustments but also long-term structural reforms to address wage growth, consumption patterns, and demographic challenges. As the world watches, the decisions made in 2024 could shape the nation’s economic trajectory for years to come.

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Glendon

Economic

In the world of Forex trading, using technical indicators effectively can make the difference between consistent profitability and unpredictable losses. Among the many tools available to traders, one standout oscillator is the Accelerator Oscillator (AO). Developed by Bill Williams, a renowned trader and author, the Accelerator Oscillator helps traders identify changes in momentum, trends, and potential price reversals. This article provides a comprehensive guide on the Accelerator Oscillator, including how it works, how to interpret its signals, and its role in Forex trading strategies.

What is the Accelerator Oscillator?

The Accelerator Oscillator (AO) is a technical analysis tool used to measure the acceleration or deceleration of a market’s momentum. It is derived from the Awesome Oscillator (AO), another popular indicator created by Bill Williams. The AO itself is a momentum indicator that measures market momentum by comparing the difference between the 34-period and 5-period simple moving averages (SMA) of the median price.

While the Awesome Oscillator simply shows momentum, the Accelerator Oscillator takes it a step further by analyzing how the momentum is changing over time. In essence, the Accelerator Oscillator measures the difference between the Awesome Oscillator and its 5-period simple moving average, allowing traders to identify momentum shifts before they become fully apparent in price action.

How Does the Accelerator Oscillator Work?

The Accelerator Oscillator is plotted as a histogram, similar to the Awesome Oscillator. This histogram fluctuates above and below a zero line, showing the strength of momentum and its directional change. Here’s how the AO is calculated:

AO = 5-period SMA of the median price - 34-period SMA of the median price

Acceleration = AO - 5-period SMA of the AO

Where the median price is calculated as: Median Price = (High + Low) / 2

Key Components of the Accelerator Oscillator

The Accelerator Oscillator consists of the following elements:

Histogram Bars: These bars represent the difference between the AO and its 5-period SMA. When the histogram bars are above the zero line, it suggests positive momentum, while bars below the zero line indicate negative momentum.

Zero Line: The zero line serves as a reference point. The movement of the oscillator above or below this line is crucial for identifying shifts in momentum.

Direction of Momentum: The direction and length of the bars provide insights into whether the market momentum is accelerating or decelerating. The larger the bars, the stronger the momentum.

How to Interpret the Accelerator Oscillator

To effectively use the Accelerator Oscillator in Forex trading, you need to understand how to read the histogram and its relationship with price action.

1. Bullish Signals (Buy Signals)

Histogram Bars Above Zero Line: When the histogram bars are above the zero line and increasing in size, it suggests that positive momentum is accelerating. This could be a signal that the current bullish trend is gaining strength.

Zero Line Crossover: A bullish signal occurs when the histogram crosses above the zero line after being below it. This suggests that momentum is shifting from negative to positive.

Green Histogram Bars: Increasingly large green bars indicate that the bullish momentum is not only present but also accelerating. This is an ideal time to consider opening long positions.

2. Bearish Signals (Sell Signals)

Histogram Bars Below Zero Line: When the histogram bars are below the zero line and increasing in size, it indicates that negative momentum is accelerating. This could be a signal that the current bearish trend is strengthening.

Zero Line Crossover: A bearish signal occurs when the histogram crosses below the zero line after being above it. This indicates that momentum is shifting from positive to negative.

Red Histogram Bars: Increasingly large red bars indicate that bearish momentum is accelerating. This may be a good time to consider opening short positions.

3. Divergence Signals

Bullish Divergence: Bullish divergence occurs when the price forms lower lows, but the Accelerator Oscillator forms higher lows. This indicates that while the price is declining, momentum is picking up, suggesting a potential reversal to the upside.

Bearish Divergence: Bearish divergence happens when the price forms higher highs, but the Accelerator Oscillator forms lower highs. This suggests that although the price is rising, momentum is weakening, which may lead to a reversal to the downside.

How to Use the Accelerator Oscillator in Forex Trading

The Accelerator Oscillator can be used in a variety of ways to enhance your trading strategy. Below are some common methods for incorporating the AO into your trading approach:

1. Trend Identification

The Accelerator Oscillator helps identify the direction and strength of the trend. By analyzing the histogram, traders can easily determine whether the market is in a strong uptrend, downtrend, or a period of consolidation. For example:

If the histogram is consistently above the zero line with increasing size, it indicates a strong uptrend.If the histogram is consistently below the zero line with increasing size, it signals a strong downtrend.If the histogram is fluctuating near the zero line with small bars, it indicates a lack of clear trend direction.

2. Momentum Shifts and Reversals

The key strength of the Accelerator Oscillator lies in its ability to spot momentum shifts before they are visible in price action. This makes it a valuable tool for predicting potential reversals. For instance:

A zero-line crossover from below to above suggests that positive momentum is increasing, signaling a potential buying opportunity. A zero-line crossover from above to below indicates that negative momentum is increasing, signaling a potential selling opportunity.

3. Combining with Other Indicators

While the Accelerator Oscillator can be used alone, it works particularly well when combined with other technical indicators. Commonly paired indicators include:

Moving Averages (MA): Moving averages can help confirm the direction of the trend, providing a secondary confirmation of signals generated by the Accelerator Oscillator.

Relative Strength Index (RSI): The RSI helps determine whether an asset is overbought or oversold, adding another layer of analysis to the momentum signals from the AO.

MACD: The Moving Average Convergence Divergence (MACD) is another momentum indicator that complements the Accelerator Oscillator by providing confirmation of trend direction and potential reversals.

4. Risk Management

Like any other technical tool, the Accelerator Oscillator should be used with proper risk management techniques. Here are a few tips:

Use Stop-Loss Orders: Always set stop-loss levels to limit potential losses in case the market moves against your position.

Position Sizing: Adjust your position size based on the strength of the signal. Larger momentum shifts may warrant larger positions, while smaller shifts may require caution.

Diversification: Don't rely solely on the Accelerator Oscillator; combine it with other tools and diversify your trades to reduce risk.

Advantages and Limitations of the Accelerator Oscillator

Advantages:

Early Momentum Detection: The Accelerator Oscillator helps identify momentum changes earlier than price action alone, giving traders a potential edge.

Clear Buy and Sell Signals: The histogram’s movement above or below the zero line provides easy-to-understand signals.

Works Well in Trending Markets: This oscillator excels in identifying trends and momentum, making it a powerful tool during trending conditions.

Limitations:

Less Effective in Sideways Markets: The Accelerator Oscillator can produce false signals in ranging or sideways markets where momentum is weak or unpredictable.

Requires Confirmation: Like any technical indicator, the AO should be confirmed with other indicators and price action to avoid false signals.

Conclusion

The Accelerator Oscillator (AO) is a powerful tool for Forex traders looking to identify momentum changes and anticipate market reversals. By analyzing shifts in momentum, traders can enter trades at more favorable times, increasing their chances of success. However, it’s important to remember that no indicator is perfect. Using the Accelerator Oscillator in combination with other technical analysis tools and practicing sound risk management can help ensure better trading outcomes.

By mastering the Accelerator Oscillator, Forex traders can enhance their ability to identify strong trends, spot reversals early, and make more informed trading decisions, ultimately improving their chances of profitability in the dynamic Forex market.

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Mastering the Accelerator Oscillator for Forex Trading Success

What is the Accelerator Oscillator?

How Does the Accelerator Oscillator Work?

Key Components of the Accelerator Oscillator

How to Interpret the Accelerator Oscillator

1. Bullish Signals (Buy Signals)

2. Bearish Signals (Sell Signals)

3. Divergence Signals

How to Use the Accelerator Oscillator in Forex Trading

1. Trend Identification

2. Momentum Shifts and Reversals

3. Combining with Other Indicators

4. Risk Management

Advantages and Limitations of the Accelerator Oscillator

Advantages:

Limitations:

Conclusion

Risk Disclosure