From China’s economic slowdown to The Brexit vote, Trump taking on the role of President and the collapse and return of Oil prices. 2016 has been far from smooth when it comes to economic stability.
Despite the chaos of 2016, Indigo FX has strived to ensure that our clients are protected by any potential financial crisis. Analysts claim that 2016 has been a seismic year politically…and has been one of the most impactful years on record for the financial industry across the globe. Economists and financial tycoons now await to see how 2017 will unfold…
Let’s take a look back at a year that has been by far one of the most eventful and some might say shocking to date for the financial industry.
The New Year Fallout
With the New year celebrations done we were almost instantly thrown into what was to be the start of a very interesting and volatile year. January proved brutal for investors as just ten days into the trading year global equity markets took losses in excess of $4tn in value. Sentiment was aggressively turned negative by fears about China’s economic slowdown and a depreciating currency. In turn, bond markets were whiplashed by the conflicting forces of central banks selling reserves to support their currencies and investors rushing for safety.
Another key element of the new year weakness in markets was the slumping oil price. By the third week of January, Brent crude hit what proved to be a low for the year of $27.10 a barrel, escalating the selling of energy sector shares and bonds, particularly the junk-rated debt of US-based shale drillers. That prompted Saudi Arabia to describe $30 oil as irrational.
Then at the end of January, the Bank of Japan delivered another big shock to markets and banks, as it embraced a negative interest rate policy. The repercussions were immediate, as investors dumped the shares of banks, while Japan’s investors sought higher-yielding Eurozone, UK and US debt. That helped drive down developed world market interest rates.
The Brexit Vote
Not long had the dust settled post the markets new year swoon before the drums began beating ahead the UK’s vote to leave the European Union. Following a referendum held on June 23 2016, 52% of votes were cast in favour of leaving.
The United Kingdom’s withdrawal from the European Union was quickly dubbed as Brexit, a portmanteau of “British exit”. Given the choice by the public, the UK government intends to invoke Article 50 of the Treaty on European Union, the formal procedure for withdrawing, by the end of March 2017, putting the UK on a course to leave the EU by March 2019.
The leave vote saw then Prime Minister David Cameron end his six-year term resulting in Theresa May being elected by the ruling Conservative Party in the wake of the referendum, New PM May has promised a bill to repeal the European Communities Act 1972 and to incorporate existing EU laws into UK domestic law. The terms of withdrawal have not yet been negotiated; in the meantime, the UK remains a full member of the European Union.
Terror in Euroland
Not only did the Eurozone have to contend with the UK’s decision to leave but a string of ongoing horrific and brutal attacks left Europe and its occupants shaken. On March 22, The Brussels bombings killed 32 people and wounded more than 300 others after suicide bombings were orchestrated at both Zaventem Airport and at the Belgium Central Metro station.
Less than 4 months later, a terrorist in a lorry mowed down revellers who had just finished watching a firework display to mark Bastille Day in France. The horrific rampage killed 84 people and injured hundreds of others on the promenade in the seaside town of Nice. The attacker Mohamed Lahouaiej Bouhlel, a 41-year-old Tunisian-born French citizen, was shot dead by security forces.
Then it was Germanys turn, A doctor died after being shot in a Berlin hospital on Tuesday July 26 during the fifth horror attack in Germany in just over a week. The string of violent attacks started when an axeman hacked passengers on a train in Wurzburg on Monday July 18. A young Iranian-German gunman went on a deadly rampage in Munich on Friday July 22 after being inspired by far-right killer Anders Breivik. In two separate attacks on Sunday July 24, a man blew himself up in Ansbach and a man killed a pregnant woman during a machete attack in Reutlingen.
A month later and France was again the target of terrorism as two armed men stormed a church in Saint-Etienne-du-Rouvray, a suburb of Rouen in northern France on Tuesday July 26. The attackers slit the throat of elderly priest Father Jacques Hamel and took four other people hostage. One of hostages is fighting for his life. Police shot dead the attackers and soon after Islamic State (ISIS) claimed that the men were soldiers of their cause.
More recently within hours of each other three more acts of bloodshed were reported across the continent. Three men were shot in an Islamic centre in Zurich. Russia’s ambassador to Turkey was assassinated at an Ankara art gallery by a police officer who cried “don’t forget Syria!“ On Monday 19th December, a large truck ploughed through a Christmas market in central Berlin killing 12 and injuring 48 others.
Yellen’s Fed & Trumpflation steals the limelight
After the shock of Brexit, Markets turned their attention to the US elections. And despite the smart money backing a Clinton win the shock factor of Trumps win had a short-lived affect. In fact, after just a few hours the concept Trumpflation took hold, whereby fiscal policy would super charge the economy and nurture inflation. Suddenly the era of ultra-low bond yields was in doubt, with the tally of negative-yielding debt slipping to less than $11tn this month. Wall Street equities have motored further into record territory. And selling of bonds accelerated in the middle of the month after the Federal Reserve pushed rates higher and indicated a more aggressive pace of tightening next year.
China’s debt pile
As the year comes to an end, we’re examining the pros and cons of a weakening renminbi and hearing concerns about China’s vast debt pile. The risk of a more active US Federal Reserve in 2017 raises the stakes for emerging markets and their dollar-denominated debt. Further US dollar strength will hamper China’s efforts to stabilise the renminbi and limit capital flight, with the risk that the country raises short-term borrowing costs. The challenge facing policymakers and investors in China was outlined in early December and overshadows the start of 2017: US interest rate rises set to expose China’s frailties — the world’s most leveraged corporate sector adds to the country’s vulnerabilities
The outlook for 2017
We might see another plethora of surprises once Trump officially takes the keys to the White House on 20th January and Theresa May finally executes Article 50 in March. The US appears to be of the belief that Trump’s reign will spawn positive results for the economy, at least for the moment. The UK’s transition from the European Union will be a long and somewhat uncertain road. And the Eurozone has a number of events including the German and French elections which will have an impact on the overall economy.
So, is it right to say that the coming 12 months will be more unstable than 2016? We will have wait and see how the US, UK and EU play their cards, whatever the outcome investors will be in an uncertain environment…
Indigo FX and You
Looking ahead you can rest assured that whatever the outcome, Indigo FX and our dedicated team will be with you every step of the way. We will continue to act as your eyes and ears in the market and be there to keep you always one step ahead making sure that no matter the market sentiment you can take advantage of positive moves.
