As per the Chinese calendar, 2016 was the year of the monkey. Well. It behaved like one. Last year, was like an earthquake which shook the global markets and wiped off trillions of dollars from the market. It was like a situation when you wake up from a nightmare only to realize that you weren’t sleeping and it is real. In spite of terrible global blunders, we step into 2017 with a “glass half full” approach. And before we do that, let us do a flashback of the movers and shakers of 2016.
The Great Fall of China.
The dragon unleashed his wrath on the markets when equities fell just after ten days of the New Year. A whopping amount of $4Trillion was wiped out and Dow Jones hit a low of 15,660 points. China’s slowdown was a heartbreak to the global manufacturing which leads to severe meltdown in global shares. I had to take my eyes off from the TV because everything was so red every day and every time.
There were many reasons behind China slowdown which included continuous devaluation Chinese Yuan, massive interference in the markets by political leaders and last but not the very least the declining performance of state-owned enterprises neatly termed as zombie enterprises.
The Leaking Barrel
The race to capture the major market share between the USA and Saudi Arabia went ugly when global crude oil glut surged crude stockpiles and Brent sunk to a low of $27.10. Well, it wasn’t a difficult math after all. If the economy was an individual, then it sure suffered a stroke and kicks in the nuts at the same time, in other words, excess supply of crude oil and reduced demand in China. The energy sector was down and many oil driven economies like Venezuela, Ecuador and Nigeria hit recession with a serious shrink in their GDP.
Bank of Japan- Why so negative?
Japan joined the negative interest rate club on January 29, 2016, when Bank of Japan governor Haruhiko Kuroda pushed BOJ lending rates below 0 percent. A rate of minus 0.1 percent was applied to the existing balances. The goal behind the negative interest rate policy was to stimulate the consumption and investment. The bank didn’t provide a clear reply, yet said that similar systems were used in Switzerland, Sweden and Denmark, which had negative rates of minus 0.75 percent, minus 1.1 percent and minus 0.65 percent, respectively.
United Kingdom- Divided and Unruled
Sometimes, an irony is in the name. The United Kingdom was no more united after 52 percent of Britons voted to leave the European Union neatly defined as Brexit which became the most trending topic all over the world. Well, that and the changed shape of iconic Swiss chocolate Toblerone. That’s right folks, getting out from the world’s most powerful trading bloc is normal but what kind of a beast alters the triangular shape of a chocolate.
Anyways, Londoners, Scottish and Irish were outraged while England and Whales decided the fate of the referendum. The Great Britain pound was hammered to a 31 year low of 1.27 and depreciated further after Mark Carney announced an expansion of the asset purchase program of 60 billion with a cut of 25 basis points in the cost of borrowing. As the Englishmen say “Brexit before you Bregret”
End of Pain in Spain
Just after Brexit, the Spaniards were ready to end the political deadlock which left Spain without any government for almost 300 days. It was impossible for Spain to get through 2016 without having a political crisis. This started in December 2015, with an arrival of ‘new’ parties Podemos and Ciudadanos. Even after June 26 elections, none of the parties were able to achieve majority or support and Spain was moving for a third general election. The conservative People’s Party (PP) of acting Prime Minister Mariano Rajoy has won most seats in Spain’s parliamentary election but was short of a majority.
But on October 29th, the Socialist party relieved some pain and said that, for the good of the state, it would enable Rajoy’s (acting Prime Minister in 2011) election, abstaining from the vote and avoiding fresh elections.
Beginning of the Trumpleton
Donald Trump made a show-biz style entrance to the Republican convention. He was found giving air kisses on camera to Mike Pence, his running mate. He appeared to be suggesting that Hillary Clinton could be shot by the gun rights supporters. He disputed with CNN regarding the polls and kept getting media attention just like old times. The war between Hillary Clinton and Donald Trump had begun. What happened next is mentioned below in the timeline.
Triumph of the Trump
On 9th November 2016, America decided to change the face of democracy and politics when the majority of states voted for Donald Trump to become the 45th President of United States of America. The House of cards was prepared for Trump to march and conquer the Iron throne. He won with 278 Electoral College votes and marked his territory starting with Alabama, North Dakota, Oklahoma, West Virginia, Wyoming, Iowa, Ohio, Pennsylvania, Wisconsin, Florida and North Carolina.
The S&P 500 plummeted nearly 6 percent while gold climbed up as high as $1338.30. on an ounce up nearly by 5 percent. However, Trump’s victory came as the first shock but another surprise was how fast equity market reversed from hefty losses to higher gains. The process to” Make America Great Again” had started.
Indian currency MODI-(fied)
While USA was in the news all over the world, one man in India decided to steal the thunder. Indian Prime Minister Narendra Modi banned all the 500 and 1000 currency notes taking an initiative to eliminate the black money from the Indian economy. The government claimed that the demonetization was done to stop counterfeiting of the current banknotes allegedly used for funding terrorism, as well as to reduce corruption, the use of drugs, and smuggling. The move was applauded as well as criticized by several economists. The Indian equities fell up to 6% after the decision and the Indian rupee fell against USD.
Return of the OPEC (sp-OIL- er alert)
Just when I lost my faith in OPEC and its indefinitely large acronym, Saudi Arabia decided to cut its output to 10.06 million barrels per day, accounting for around 500,000 of the 1.2 million barrel cut. The United Arab Emirates, Kuwait, and Qatar would cut by a combined total of roughly 300,000 barrels per day. Iraq would slash its production levels by 200,000 barrels. Indonesia was suspended from the group, and OPEC had agreed to distribute Indonesia’s oil output share among certain countries. The oil prices surged after the news and Brent climbed around 10% to $51.58. It was the first sane thing which happened during the end of the year.
Italy’s Constitutional Referendum
I wonder how much voting has taken place last year. It feels as if I had to conduct a referendum on whether to Empty your bowels or Lay on the bed. After oil producers strike the deal it was time for Italians to vote on the constitutional reforms presented by Prime Minister Matteo Renzi. Mr. Renzi put his career on the stake and bet his chair in case of losing the referendum. Unfortunately, Central Italy was already shaken by a series of earthquakes over the past year killing almost 300 people.
Adding to the further issues was the poll on Renzi’s reforms. He proposed sweeping reforms to the country’s notoriously slow and costly government. The proposed reforms would have reduced the Senate’s powers and transformed it from a chamber of 315 directly elected politicians and six-lifetime appointees to smaller “Senate of Regions”. But Italians made a la referendum pasta out of it and rejected it with a majority of 59.4 percent. Prime Minister Matteo Renzi resigned after he was defeated.
Federal Reserve Rate Policy
How can we forget the official Santa Claus of Federal Reserve, who brought us a pre-Christmas gift of Rate hike in December 2015. The tradition followed last year too and Fed Chair Janet Yellen hiked the lending rates by 25 basis points to 0.50 percent. Fed also stated in the press conference, that there was a target of three more rate hikes in the year of 2017. The rate hike was a grand finale to this dramatic year.
Each event shook the financial markets and provided immense volatility. The year 2017 will be a year of Rooster, as described by the Chinese calendar. So, it is time for the monkey to hide in the bushes and pave the way for the rooster which will cock-a-doodle-do the beginning of a new positive year.