2017 – As Interesting as 2016

USDIndex, Monthly              

Instead of ringing in the new year, the markets will “Trump-et” it in. The year 2016 was a wild one for the markets, full of amazing surprises and resultant volatility. And considering the significant changes that will go into effect in 2017, this year could be just as tumultuous as 2016, if not more so. The new Trump administration will be the change leader, at least initially, as he fills his cabinet and sets his agenda for the first 100 days. But quick on the heels of Trump’s January 20 inauguration in March will be the start of Brexit negotiations and the Dutch general elections, along with key elections in France and Germany later in the year. Also, OPEC and 11 non-cartel members are expected to start the year by implementing production cuts of about 1.8 mln bbls per day for at least the first six months of 2017.

The turbulence of 2016 was dramatic and record-breaking, from the worst start in equity markets ever, thanks largely to plunging oil prices, to new all-time highs thanks to the Trump triumph, with Brexit gyrations in the middle. New record low yields were set in many sovereign bond markets too, amid uber-accommodative monetary policy stances from core central banks. Indeed, ongoing and extended central bank stimulus helped sovereign yields dive, taking rates in many sovereigns to new lows, culminating with negative rates across much of Europe (at one point totaling over $13 tln). The 10-year Treasury note posted a new all-time nadir of 1.357% in July, but surged late in the year to 2.50%, just off the year-to-date peak of 2.598%. Meanwhile, global equities, which got off to a very rocky start amid plunging energy prices, ended the year just off record highs. The Dow and FTSE are vying for the strongest year-t o-date improvements in core markets, up nearly 14%. The dollar index traded from a 92.6 low for the year in May, to 103.3 in late December, the firmest since late 2002. Similarly, oil prices plied a hefty range for the year, from $26.05 on February 11, to an intraday high of $54.51 on December 12. Central bank actions were no less fitful, especially as the FOMC’s long awaited rate hike diverged from additional stimulus from the ECB, BoE, and BoJ.

As 2017 begins, the various geopolitical uncertainties that blindsided the markets last year will remain in effect and will make for a very volatile start to the year. The early risk is that the high expectations and enthusiasm for change and growth, reflected in record high stock prices, won’t be met, and that could set off major shake ups in equities, bonds, and currencies. Markets do, after all, have a habit of getting ahead of themselves. We all wait and see whether Trump can quickly effect the change he promised, especially with respect to deregulation, taxes, and trade.



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Stuart Cowell

Market Analyst


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