Will this be the year that we learn to love Donald Trump? The year that the European Union falls apart? The year that global oil overcomes its slippery reputation and the price settles down, or will it invert the relationship with economics as it did in the 1970s? Will Theresa May manage to avoid the back-stabbing daggers for long enough to secure a Brexit on at least her own terms? What effect will the supreme court’s ruling have on the Brexit process?And have we finally seen the end of the bond revival?
We wish we knew. But here, for your diary, are a few of the market-moving things that we think you’ll be wanting to follow this year.
February: Trump Trump Trumpety Trump…
Yes, it’s coming for you, ready or not. Is Donald Trump’s plan for the US recovery going to work in the long term, or the short term, or indeed ever? Will he slap a 45% import tariff on all Chinese goods, and 35% on any other countries such as Mexico which he feels aren’t playing to America’s rules?
Will the Prez go straight into action with his plans to reform corporate tax rules? Timetabling the changes might be difficult, since the fiscal year starts on 1st January, not in April like Britain or Japan. But where there’s a will there’s a way.
Industrial job creation? That’ll take a while, too. But the social welfare expenditures and public obligations that have kept Barack Obama’s scope for action so limited will still be around until those factory doors finally start to open. That’s going to be an uncomfortable gap, during which Trump’s popularity will be put to the test.
Spring 2017: Rising US bond yields/interest
One of the things we can state with absolute certainty, starting any time now. For more than a year, Trump has been rampaging at the Federal Reserve about how it has kept US bank rates low in order to ingratiate itself with the Obamas. And sure enough, in December the Fed announced that it would be raising the Fed Funds target by 25 points to 0.75%, with another three rises anticipated during 2017 – also of 25 points each.
What will that do to demand and corporate investment? Assuming that the rest of the tax reforms seem on course, US businesses ought to be able to weather it. But the impact on an already embarrassingly strong dollar may prove negative. It certainly won’t do much for world trade.
15th March: Netherlands elections
The Dutch election is the first of many major political tests for the European Union this year. The incumbent government of Mark Rutte, which consists of liberal and socialist elements, faces a stiff test from the far-right Party For Freedom, led by Geert Wilders, which is projected to win 33 out of 150 parliamentary seats – more than any other party. (Yes, it’s a fragmented system.)
The snag is not just that Wilders has promised to get his country out of the EU if he wins power; he was also convicted last month of inciting racial hatred, and he reportedly wants to close all mosques – and to ban immigration from Muslim countries. So could he achieve any of these aims? Not without cross-party support. And could that happen? After the Brexit vote, who can say?
31st March: Article 50
Theresa May’s self-appointed deadline for setting the UK withdrawal process from the EU is under way, of course. We won’t waste your time with telling you what Article 50 means – but the other 27 EU partners seem resolute in their insistence that Britain’s access to the entire Single Market trade area will expire the day after the two-year consultation process ends.
That will apply even if the 27 spend the next two years playing for time and simply sharpening their pencils. (Or if some other catastrophe hauls them all away from the negotiating table.) Small wonder, then, that Mrs May lost her experienced chief negotiator, Sir Ivan Rogers, in early January and had to replace him urgently with the tough-talking Sir Tim Barrow.
Is it all a bluff by Brussels, as Boris Johnson insists? Will the 27 partners cave in for fear of losing the UK as a trading partner? And what of the plans to retain Britain’s banking passport, by cash purchase if necessary? Finally, there’s the latest spanner in the works for Ms May, as she has to accept the decision by the Supreme Court in late January, that parliament must now be consulted on Brexit, and we must await the implications of what this will mean in practice. These are not small things to be uncertain about.
23rd April and 7th May: France’s presidential election
The election season gets back into gear with a two-stage election which pits Marine Le Pen, the Eurosceptic leader of the Front National, against the conservative former prime minister François Fillon and a socialist candidate who had yet to be named at the time of writing. (What we do know is that the incumbent president François Hollande won’t be standing, due to his appallingly low electoral standing.)
It is generally agreed that the charismatic Ms Le Pen will make it to the second round of the election. She has previously demanded that France leave the Eurozone, although not necessarily the EU, where she says the national sovereignty question needs to be renegotiated. But in January she floated the curious idea that France should have both the euro and the franc – a throwback to the European Currency Unit that existed before the euro.
19th May: Elections in Iran
Donald Trump’s least favourite democratic state goes to the polls in a contest that pits the incumbent President Hassan Rouhani against a hardline opposition that has accused him of kowtowing to the west.
It’s not clear which other candidates will be standing against him, but the hardliners are generally committed to scrapping the ground-breaking nuclear deal with the rest of the world which Barack Obama helped to achieve in 2015. Oh well, that’s at least one issue on which they agree with Trump. Less facetiously, this is a potential flashpoint which may well impact on oil prices. Because, let’s remember, the restoration of oil exports was the whole incentive for Iran to go along with the 2015 deal. What price an oil supply squeeze now?
June and July: Oil prices
What price indeed? At a time of year when seasonal demand for oil is normally on the rise – due, apparently to the onset of the “summer driving season” in the US – the prospect of a sudden tightening of supply from Iran would probably put a smile on Donald Trump’s face, since a price rise would push a number of US shale oil corporations back into profitability.
It would also cheer up his Russian counterparts. And the Saudis, who have historically acted as OPEC’s ‘swing producers’, expanding and contracting their production to stabilise prices, but who have increasingly been opening the export taps all year round so as to boost their own revenues.
Oil price forecasting is, however, a notoriously fallible business. Will anyone ever forget the International Energy Agency’s brave forecast in July 2008 that crude would top $200 by Christmas? Instead of which it ended the year close to $30, where it sulked for a year or more.
28th September: Anyone for asteroids?
Near misses don’t get much more unwelcome than the nattily-named 2013 TX68, a 100 foot diameter asteroid which – according to astronomers – is heading for our planet at 34,279 miles per hour but which ought to miss us by, ooh, at least 11,000 miles, or maybe nine million miles if the wind’s blowing the right way.
The good news is that NASA puts the chances of an impact at 250 million to one against. The bad news is that the same agency miscalculated the same rock’s flypast in 2016 by a full three days, which equates to really quite a lot of space distance when you think about it. You could probably get some excellent betting odds on an asteroid strike from 2013 TX68, but you might have trouble collecting your winnings.
22nd October (latest date): German elections
And so to the most widely watched election of the year, the one which will pitch Christian Democrat leader Angela Merkel and her Social Democrat coalition partners against a rising tide of alt-right nationalism led by the AfD (Alternative für Deutschland) – a ragbag of right-wing, anarchist, irredentist and anti-Muslim grouping which has been chasing her party hard in the recent regional state elections.
AfD supporters believe, in no particular order, that Germany should stop pandering to the demands of ‘soft’ southern European states for financial support; that Berlin should consider splitting off from the euro club to form a sort of northern currency league; that the government should take action to secure German sovereignty and stop Brussels from deciding everything (where have we heard that one before?); and, most controversially, that the immigration of more than a million Syrian and Middle Eastern refugees should be stopped and if possible reversed.
The ‘open doors’ immigration policy looks, in retrospect, like Frau Merkel’s biggest mistake, and a recent spate of Islamic State-style atrocities against German cities has put her on the back foot, politically speaking. But there are few international pundits who expect Merkel to lose the autumn election, all the same. If only they hadn’t said the same about Trump and the Brexit vote.
October/November: 19th China Communist Party Congress
We’ll round off this year’s events with possibly the most important political bunfight of the year – the five-yearly Communist Party Congress in Beijing, which will set out the economic direction of the billion-strong nation over (you guessed it) the next five years. Chinese governments take very much second place to the ruling Communist Party shindigs, so that’s where the world’s media will be looking for guidance. And so will the foreign producers, the commodity suppliers and the politicians.
Item one on the checklist will be the development and direction of the national economy. The 18th Congress in 2012 instructed Chinese producers to stop focusing so much on the export industry and direct their output instead at the Chinese consumer; it also resolved to try and restrain the domestic borrowing boom and the soaring property inflation – and in large part, it has succeeded.
No-one should doubt, however, that American trade policy will be playing a central role this time around. Should China continue with its weak yuan programme, which has so annoyed Donald Trump, and how should it respond to any unfriendly tariffs from Washington? Should China settle for less than 6.5% economic growth?
And so to 2018…..
Without a doubt, though, the 19th Congress will bear the hefty stamp of President Xi Jinping, who is steadily crushing his way to dominance among the political elites. No longer is he simply called First Among Equals, in traditional CP style – nowadays he’s referred to as “the Core Leader” – and that’s a historic phrase that denotes an insistence on absolute obeisance. Expect a tough consolidation of Xi’s power, and a little more of the iron fist in a slightly less velvety glove. A measured response, perhaps, to the tough-guy Trump phenomenon that’s happening on the other side of the globe?