Macroscope | Global financial markets starting 2016 where they ended in 2014
For equity markets, it’s like 2015 never happened although buys and sells abound
One of my favourite economic cartoons begins in a trading room full of happy faces speaking on the phone saying, “BUY, BUY!” to each other. Suddenly someone hears the word “Bye”. Someone else picks up “Bye Bye”, and the cartoon ends with a sea of gloomy faces winding each other up by shouting “SELL, SELL!”
Investment markets in 2015 saw sizable changes of sentiment every couple of months, but nevertheless markets seem likely to close the year largely where they began. The US S&P 500 index is flat on the year while the European markets are up nearly 10 per cent in local terms, though around break even in US dollar terms. In a sense, 2016 begins much as 2014 ended in terms of the economic and financial fundamentals - as if 2015 barely existed.
Those of us in the markets spent much of 2015 gazing at our navels; focusing on the trees rather than the forest.
Would tiny Greece bring down the global economy? Would the Fed raise rates by the smallest amount in March, September or next year? Are falling oil prices good news or bad?
We even lived through the remarkable event of the first US interest rate rise in nearly a decade, and despite that, it appears that the underlying economic trends from 2014 remain largely intact.
Conditions to expand business and the economy in 2016 are (like 2014) very advantageous, with low interest rates, low input costs (commodities and oil), low inflation, helpful government policies, muted wage inflation, and automation that is reducing labour costs.