Economic & Strategy Viewpoint
In this month's Economic viewpoint our economists review the major developments that impacted markets in 2015 including China growth, Federal Reserve rate speculation and geopolitical pressures, as well as previewing what investors can expect in 2016.
2015 review: China and oil and the Fed, oh my! (page 2)
- 2015 was a poor year for risk assets. Only government bonds and cash delivered a positive return. Global equities were dragged down by a lacklustre US market along with a terrible performance in the emerging world. Credit performed even worse than both government bonds and equities while commodity markets managed to surprise most, posting another awful year of negative returns.
- China hard landing fears, the commodities slump and Federal Reserve (Fed) tightening all weighed on sentiment and risk appetites. 'Grexit' risk also returned along with political risk in Iberia following the two elections. Not to be left out, Brazil’s corruption scandal has guaranteed political paralysis and its sovereign rating being downgraded to ‘junk status’.
- To the upside, the European Central Bank (ECB) introduced quantitative easing and took rates into negative territory helping to boost European markets. The Bank of Japan (BoJ) maintained its stimulus, with Japanese equities outperforming most thanks to the yen depreciation of 2014. In emerging markets (EM), Russia equities performed well despite falling oil prices.
Themes for 2016 (page 10)
- Desynchronised global growth, a stronger dollar and the likelihood of China joining the currency wars are in prospect for 2016. Politics will also loom with the US Presidential election and 'Brexit' votes (to name but two).
- More immediately, the widening of credit spreads has raised fears of a sharper US downturn. This is a risk, but the fall in oil prices which is largely responsible for the credit move will also boost consumption. Lower oil prices are a mixed blessing, as 2015 has demonstrated, but history shows that they do not cause recessions in the major economies.
Views at a glance (page 16)
- A short summary of our main macro views.