Inflation, Oil, and Gold: What’s Shaping 2024 and Beyond

Join Eric Norland, Chief Economist at CME Group, as he unpacks the forces shaping global markets in 2024 and beyond, including inflation trends, oil dynamics, and the evolving role of gold. Hosted by IBKR’s Andrew Wilkinson, this episode explores economic shifts and emerging opportunities for investors.

Summary – IBKR Podcasts Ep. 211

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to this IBKR podcast. Joining me today live from London is Eric Norland, who is the Chief Economist over at the CME Group in London. Welcome, Eric. How are you? 

Eric Norland 

I’m doing great. How are you? 

Andrew Wilkinson  

Fine, thank you. Just looking forward to this shortest day of the year coming up in a couple of weeks. Then I think the world gets a little colder for a while, but we can certainly look forward to a new spring. 

So we’re going to look back at 2024 a little and also delve into the crystal ball to see what we think about 2025. What are some of the macro highlights you can identify, Eric, for 2024? 

Eric Norland  

One of the biggest highlights, which I think is a little overlooked, is that inflation rates around the world have stabilized at levels significantly higher than central bank targets. Inflation came way down from its peak in 2022. But in the U.S., for example, core inflation is at 3.3%; in the Eurozone, it’s at 2.7%; and here in the UK, it’s still around 3.5%. It’s consistent across many different countries. 

All of this has given central banks some hesitation. They started cutting interest rates, but now they’re wondering how much further they can go without risking a subsequent wave of inflation later this decade. In terms of economic growth, the U.S. has been surprisingly strong, but other regions have not. China’s economy is very weak, while Japan and Europe are stagnant. Some countries are barely growing, and others look like they’re teetering into a mild recession. It’s really a mixed bag. 

Andrew Wilkinson 

Is there a particular market that’s surprised you most this year, Eric? 

Eric Norland 

The equity market has proven very resilient. Another surprise is that long-term bond yields haven’t been going higher. That’s surprising for a couple of reasons. First, we have the inflation story we just mentioned. Then, there’s the supply of debt issue. 

Many countries are running enormous budget deficits. In the U.S., the deficit this year is around 7% of GDP, which is huge at any stage of the economic cycle. It’s particularly alarming to run a deficit that large when unemployment is low, at around 4%. In France, the deficit is 5.5% of GDP, which is enormous. The French government looks close to collapsing, with Michel Barnier’s government likely losing a no-confidence vote. Here in the UK, the deficit is 4.5%; in Italy, it’s 7%. China and Japan also have large deficits, and Spain’s is about 4%. 

Despite these persistent deficits and inflation pressures, long-term bond yields haven’t risen much. They’ve drifted higher at times, including over the last couple of months, but they’re not much different now than 12 months ago. This is despite large deficits and central banks like the ECB and Federal Reserve continuing to shrink their balance sheets, which pushes more debt into public markets. 

Andrew Wilkinson  

You mentioned the strength of U.S. equity markets, but what about the U.S. economy? Were you surprised it didn’t fall into a recession in 2024? 

Eric Norland  

A little bit. I wasn’t surprised it didn’t happen in the first half of the year—I wasn’t expecting a recession in H1. But in H2, the economy has been surprisingly strong. However, there are cracks appearing. Unemployment has risen from 3.4% in April 2023 to 4.1% now, and a new number is coming out Friday. 

We’re also seeing rising default rates on credit card debt and auto loans. Lending standards have tightened dramatically. So there are signs the economy is overextended. But for now, GDP growth is hanging in at around 2% per year in Q4, according to the Atlanta Fed Nowcast. 

Andrew Wilkinson  

Let’s talk about the world’s futures markets. What are you seeing in term structures, and which markets might be deviating from expectations for next year? 

Eric Norland  

Crude oil is one. It’s in backwardation—nearby contracts are trading at around $69 to $70 per barrel, while contracts further out, like December next year, are at $66 to $64. I think the downside risks to oil are greater than many realize. Weak demand in China, driven by slow economic growth, is one factor. Gains in vehicle efficiency and surging electric vehicle adoption are others. In China, 50% of new cars sold are EVs. 

U.S. crude oil production recently hit a record 13.5 million barrels per day. The incoming administration plans to expand drilling, which could push production even higher. Saudi Arabia and OPEC delayed a decision to increase output until March 2025. If Saudi Arabia raises production by 3 million barrels per day, it could heavily pressure oil prices. 

Interest rate curves in the U.S. are also difficult to predict. The low end for Fed rate expectations has been around 2.75%, while the high end is 4.5%. We’ve been drifting toward the high end. But if the economy weakens next year, the Fed could cut more than expected, leading to a steepening yield curve. This would be due to the massive debt issuance and possible rate cuts. 

Andrew Wilkinson  

Eric, is there a particular futures market that excites you most for 2025? For example, something unseen at this point? 

Eric Norland  

Gold remains very interesting. It corrected slightly after the election, but the environment is ideal for it. Central banks are cutting rates, inflation is above target in many countries, and budget deficits are enormous. This environment favors alternative assets like gold or Bitcoin. I think real assets like gold, silver, and Bitcoin could remain compelling into 2025. 

Andrew Wilkinson  

Eric Norland, CME Group Chief Economist in London, thank you so much for joining me today. Have a great holiday season, safe travels, and a well-deserved vacation in early 2025. 

Eric Norland  

Thank you. It was fun. I look forward to seeing you all next year. 

Andrew Wilkinson  

And thanks to you, the audience. Don’t forget to subscribe to the channel wherever you download your podcasts.