Looking back on a turbulent financial year in 2016
Several big events shook the financial markets in 2016, with the most significant being the Brexit vote, oil prices and the Trump election.
It all started badly in January 2016 with numerous large companies such as Apple, Google and Rio Tinto suffering a slump in share prices. Global equity markets lost over $4bn in value in the first 10 trading days of the year and by just the end of January, Japan was forced to embrace a negative interest rate policy which was another big shock for banks and markets.
Further Shocks in Summer
In June, the UK’s referendum on whether to remain in the EU was widely expected to be a vote to stay, and the result was a genuine shock for investors. As predicted, the pound buckled in an historic trading day. Italy’s constitutional reforms and bad loans also continued to keep their banking shares in deep trouble.
By August, the global stock of negative-yielding debt had fallen sharply with Switzerland’s entire bond market briefly trading below zero. The insurance and pension industries bore the brunt of this.
OPEC and Trump Add to Volatility
After the shock of Brexit, the smart money was still on Hillary Clinton in the US elections, and Trump’s surprise victory soon introduced the concept of Trumpflation, with expectations that fiscal policy would nurture inflation by super charging the economy.
Also in November, Opec met in Vienna to tackle declining oil prices and agreed to cut supply leading to a boost to crude oil prices. Saudi Arabia are now set to line up an equity flotation of their state owned oil company Aramco by 2018 to keep prices over $50 a barrel.
By the year’s end, attention has turned to China and it’s vast pile of debt and the weakening renminbi. Emerging markets with dollar-dominated debt will be at risk if the US Federal Reserve is more active in 2017 and gains in strength. Ultimately, China may face short term borrowing costs.
All this market turmoil has been broadly navigated and despite increasing concerns, there has been less damage than had been previously feared – the world has not been plunged into a new recession. However, it is fair to say that the global economy did walk a tightrope in 2016, and 2017 will bring even more challenges.
Trade Volatility with the leading brokers:
Further Reading: