The fourth quarter of 2023 was described as one in which markets went from panic to euphoria. Since the beginning of 2022 the US Federal Reserve had raised its reference rate from 0.25% to 5.50% over 16 months, the most aggressive tightening cycle in decades. The report said that a speech by the Fed chair on 1 December marked a change in tone, with rate rises to be paused and expectations that the last hike of the cycle had been seen. Core inflation had eased from its peak in 2022.
October was a nervous month with most asset classes losing ground, after strong core inflation data for September and Fed meeting notes that did not rule out further tightening. November was more benign, with a recovery on improved economic data that continued to the year end. The S&P 500 Index rose 14% in the last two months of the year, and the yield on the 10-year US Treasury fell from almost 5% to 3.9%. Gold rose again to an all-time high, while other commodities softened on the prospect of a weaker economy.
The report described 2023 as defined by an increase in conflicts. The war in Ukraine continued into a third winter. In September Azerbaijan took control of the Nagorno-Karabakh territory that had been under Armenian control. In early October an attack by Hamas on Israel caused 1,200 casualties among Israelis and 240 people were taken hostage, and Israel's army subsequently entered northern Gaza. US-China talks at the November APEC Leaders' Forum produced minor agreements. In space, a Russian lander crashed on the moon at the end of August and days later India landed an unmanned vehicle near the lunar south polar region. The report also noted advances in treatments for illnesses including Alzheimer's disease and several cancers.
The report also referred to the rapid development of artificial intelligence, and discussed the economic outlook for 2024, including the views of the International Monetary Fund and market expectations.
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