Crystal ball gazing – what’s in store for 2017?
This is our last video for 2016. So it seems only fitting that we look ahead and consider what might be in store for 2017. Without a crystal ball, here are my thoughts.
Overall, the divergence story will dominate 2017. This takes the shape of an environment where the US pursues re-inflation supply-side policies, whilst Europe and Japan take a different path – continuing to run loose monetary policy - controlled by central banks.
This difference will drive bonds and equities. It will also see the US Dollar continue to strengthen.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 21 Dec 16
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Venezuela tension heats up
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Duration 03:10
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Markets climb as investors watch US healt...
Duration 02:31
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This is our last video for 2016. So it seems only fitting that we look ahead and consider what might be in store for 2017. Without a crystal ball, here are my thoughts.
Overall, the divergence story will dominate 2017. This takes the shape of an environment where the US pursues re-inflation supply-side policies, whilst Europe and Japan take a different path – continuing to run loose monetary policy - controlled by central banks.
This difference will drive bonds and equities. It will also see the US Dollar continue to strengthen.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
Overall, the divergence story will dominate 2017. This takes the shape of an environment where the US pursues re-inflation supply-side policies, whilst Europe and Japan take a different path – continuing to run loose monetary policy - controlled by central banks.
This difference will drive bonds and equities. It will also see the US Dollar continue to strengthen.
The fallout is that asset allocation will be difficult. Asset allocations that have worked for the past eight years – while markets were focused on central banks – may not work going forward. Instead, fiscal policy and the ramblings of Donald Trump will dominate the conversation. Even US rate rises will take a second seat to fiscal policy announcements.
There are two possible scenarios that could play out in 2017:
New fiscal policies get passed quickly and cause re-inflation in the US; or
The US fiscal policies don’t make a difference, and the US reverts to an environment of low growth, low inflation and full employment.
We can’t predict which scenario will win out. But it is fair to say that the market strongly believes – and is very optimistic – about scenario one. This optimism is sporting equity markets into the Xmas break and beyond.
Also in the US, the yield on Treasury Bonds have moved significantly higher and very quickly since the election. The full flow on effect of such a rapid rate rise is yet not known.
The rise in Treasury Bonds has also caused long rates to rise globally. This will cause issues in Europe and Japan where they are trying to keep their long rates low. Long rates rising quickly in Japan and Europe could be risky for markets in 2017.
If the market gets it wrong and scenario two plays out, the asset allocation that has worked for the last five years will likely continue to work.
Finally, as global investors shift their money out of defensive assets and into sectors like Energy, Materials and Banks, Australian equities should eventually benefit thanks to our high exposure to these types of sectors.