Back to the start of another year, rather like the end of 2014, 2015 saw equity markets end on a damp note, resulting in the S&P 500 having its first down year since 2011. In the end, despite all the volatility, global bond and equity markets finished the year close to where they started them. Aside from the continuing concerns that influenced capital markets last year, the year ahead has several additional events that may reintroduce some of the volatility that was a feature of 2015. The US election later in the year, the possibility of an increase in geopolitical risk as well as what the Federal Reserve will do with interest rates, and if the Bank of England follow suit, are amongst them. There is also the possibility of a referendum in the UK on our membership in the EU. Commodity price weakness has been the subject of much speculation in the past year, and most economists appear to remain cautious of any recovery in prices, as demand remains weak and supply plentiful.
Our personal view is that this year’s stock market performance will hinge on one thing ultimately, the strength, or otherwise, of the US economy. China and Europe, the catalysts for some of the volatility in the past year, economies appear to have stabalised. Should the US economic growth surprise and inflation remain modest allowing the Federal Reserve to raise rates in a measured fashion, earnings should recover and stock markets should rise. If on the other hand the US is forced to hold on rates as the economic growth falters, then stock markets could be in a more difficult place.
The year starts in earnest from a macro stand point from today as the purchasing managers survey results for December are released in the coming days. For the US economy the numbers are released on Tuesday and Wednesday, November’s manufacturing figure was disappointing as the index fell to 48.6, suggesting the manufacturing base in the US is contracting. Expectations are for the reading to remain unchanged for December. Any further deterioration may not be taken well by US investors. Also on Thursday the release of the minutes from the last FOMC meeting, this is the meeting that decided to raise rates for the first time in eight years. The week ends with the release of the latest employment data, analysts have forecast for the US unemployment rate to remain at 5%.
As for the UK, the latest Markit manufacturing Purchasing Managers Index is released later on Monday. The services report follows on Wednesday.
It’s a busy week in the euro area macro data. On Monday, Markit release the December PMI manufacturing number, and on Tuesday the latest inflation data for the region is released. On Thursday, we receive consumer confidence, industrial and economic sentiment as well as the latest unemployment rate.
Economic data from the Chinese economy appears to have stabalised in the past months. Hopefully this stabalisation will be reinforced in the coming week. On Monday December’s Caixin Manufacturing purchasing managers survey and on Friday Decembers import export numbers will be the focus.
As appears the case at the start of every year since the recovery in 2009, the year ahead seems to be littered with economic pit falls. keeping fear rather than greed as the controlling influence. As we enter 2016, with the global economy still on what appears to be a bit of a knife-edge, fear will probably remain.
Wishing everyone a happy new year and all the best for 2016.