#9 – 2016 the rise of asset prices

As we reflect upon the economic impacts of what happened in 2016 (from the whipsaw we saw through Brexit and Donald Trump), and what is in store or 2017. I thought it would be useful to visually see some of the developments.

2016-new

Clearly the most transformative year in some time, as expectations and economic benchmarks across the spectrum: inflation, the currency markets, commodities, equities and interest rates all increased rapidly as the market

Some highlights:

  •  A surge in inflation five-year US forward swaps — a measure of the average inflation expectation over five years beginning in five years.
  • Rising inflation expectations also revised projections for the Fed, as investors anticipate a faster tightening cycle to counter the prospect of a hotter economy and increasing consumer prices
  • US banks were among the chief beneficiaries of higher Treasury yields and a steeper yield curve. Financials are expected to earn more money from lending as long-term fixed rates for loans and mortgages climb further above overnight and short-term borrowing costs (as well as benefit from regulation)
  • European bank stocks enjoyed a powerful rally after a battering in the first half of the year, when news of looming legal penalties, negative interest rates, the UK’s Brexit vote and fears over the Italian banking sector sunk share prices
  • The closely followed three-month Libor rate — a global floating interest rate benchmark that trillions of dollars of corporate loans, credit cards and derivatives contracts are tied to — neared 1 per cent for the first time since the US emerged from recession in 2009.
  • Higher commodity prices provided the ballast for the US energy sector’s rebound, with Brent crude — the international oil benchmark — up more than 90 per cent from its February low.

Hold on to your seats for 2017, the first 100 days of the Donald Trump administration will be likely volatile, as the sky high expectations of the market (for Donald Trump and his ability to deliver on tax reform, and infrastructure spending) will come into focus. Happy new year to all!

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