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REVIEW OF 2016 AND EXPECTATIONS FOR 2017

​In Macro Thoughts’ end of 2015 review, I forecast US yields would fall to 1.35%, a record low, and that in Q1 2016 the BOJ, RBA and RBNZ would cut rates, the BOJ into negative territory. Having seen these forecasts realised, (25 plus ticks achieved in both Japanese and Australian futures), by the beginning of the second half of the year I turned bearish on bonds, expecting political risks to dictate for the next 18 months, from June 2016. So is there any reason to suggest the multi-decade bond rally is over, is the US economy any better, and can equity markets continue to rally?

Prior to the US election, Macro Thoughts September 16, 2016 commented, ’Consumers have had little or no assistance from central banks, generally, and with government fiscal policies being limited and insufficient to tackle the lack of consumer demand, particularly in Europe, trade has suffered. Protectionism is rising now and geopolitical risks are increasing. These issues will come to the fore as disillusioned populations, who have increasingly been asked to make sacrifices, are becoming more militant, questioning the established parties and looking for change. Having failed consumers for 8 years, there is an underlying rebellion amongst Americans, and this is giving Donald Trump a momentum towards becoming President that few would have forecast. Such dissatisfaction is also being observed around the world, and Brexit may be just the start of significant changes that will occur over the next 12 months, which will have a macroeconomic impact’. 

While many commentators are looking for higher percentage growth for 2017, this is not a surprise, as the first half of 2016 was so weak; however, 2% growth for 2017 is still low compared to what should be expected during a recovery and many headwinds are not being assessed, while perhaps too much is expected from Trump. The Fed and many commentators are again expecting the Fed Fund rate to be raised 3 or more times during the year, yet the more dovish make up of the FOMC and weak Q1 GDP could delay the first increase and again markets should start to ask questions. Despite the hype over 3.5% US GDP in Q3, this quarter followed alarmingly weak growth in the first half of the year. Having been boosted by Soya Bean exports and increasing inventories, Final Domestic demand was still only 2%....

Because of the risks, trading Volatility should continue to create opportunities for Fund Managers, but only if the homework is done properly, as previous buy and sell levels that are traditionally used by Market Makers may not be so clear in 2017, as it will be politics as well as economics that dictate market risks. Macro Thoughts August 26, 2016, ‘After a year in which many macro funds have found it particularly difficult to gain traction, macroeconomics and geopolitical awareness are likely to be more important than ever over the next 12-18 months’. 

• Worrying signs for traditional industries in the US...
  
• Dollar strength... 
  
• Macro Thoughts...
  
• Turning tactically bond bearish early in Q3...
  
• Brexit...
  
• Europe...
  
• Macro Thoughts’ investment strategies and hedges during 2016...