2015 has been an interesting year in the financial markets. In the currencies, the dollar has dominated the financial markets. It has strengthened among the major currencies. For instance, the dollar has gained against the Euro by 12%, against the pound by 15%, and against the Australian dollar by 20%. The Dow has lost 2.65%, the NASDAQ has gained 5.76% and the S&P 500 has fallen by 1%. The Russell index which tracks small caps stocks has fallen by 4.15%. In the commodities market, the rout has been enormous. Crude oil has fallen by 30%, gold by 15%, and silver by 12%. The Bloomberg Commodities Index has had the worst year since the financial crisis.
Around the world, the losing streak has been a key theme with three factors playing an important role. These are: the Federal Reserve decision, the uncertainties in the Eurozone, and the slowing Chinese economy.
The Euronext index has had a positive year gaining 11.47%, the DAX has gained 9.86%, AEX has gained by 4.63%, the SMI has lost by 3.09%, the Nikkei has lost by 7%, while the Shanghai composite index has shed 10.3%. In the bond market, the 5 year note has returned 3.93%, the 10 year has returned 3.36, and the 30 year has returned 7.87%. In this article, I will look at the key events that will likely shape 2016.
This year has seen the continued rise and rise of ISIS. The attacks in France and the United States have increased the global alertness to crime perpetuated by this terror group. This has been further fuelled by the crisis in Syria and Yemen. In Syria, war has continued to rise with three main fanctions. One is led by the Syrian government, the other one by the opposition to the current regime, and the other one by ISIS. The global community is united by noting that ISIS is the main enemy. However, the challenge is on how to deal with it since Russia is supporting the Assad led government. A few weeks ago, the Assad led faction accepted to calls by the Western powers to negotiated talks. Depending on how these issues continue, the financial market will most definitely react.
Rate of rate increases
The Federal Reserve finally decided to pull the plug in its December meeting. The committee hiked by 25 basis points as expected. As such, the market’s reaction to the news was not extrapolated as had been experienced a week before by the announcement by Mario Draghi to reduce interest rates instead of continuing quantitative easing. In the coming year, investors will keep watch on the economic data that will be released. This data will determine the rate of rate increases during the year. Many experts believe that there will be 3-4 rate hikes during the year.
In 2015, China has been a key driver of global finance. The country which has experienced massive growth in the past is now experiencing slow growth. In addition, this year, the country devalued its currency. Participants in the financial market will have China in the radar. Every economic or fiscal data that will be released will likely drive the markets higher or lower.
Crude oil is the most used commodity on earth. This year, the prices have fallen by more than 50%. The spiral effect to this situation has been enormous with oil and gas companies falling. At the same time gasoline prices all over the world has fallen. The main gainers to this loss has been airline stocks which have benefited by paying less amount of money for fuel. In 2016, the financial community will have a close interest to the crude oil prices and whether they will recover or not.