Before going in details let’s review my forecast for 2015 as per my blog posts between 28 Nov 2014 and 13 January 15.
Stock market. Not an index following year. Outcome slightly positive with an off chance of negative return. Not a pretty year for Australia. Score Good(still thinking US positive after this week)
Oil USD 35 to USD 40 Score Good
Gold weak with a maximum top of USD1300. Score Average
Iron Ore: $65 or lower Score Average
AUD USD 70/75cents. Score Good
Geopolitics: weak China, issues with Greece, Sinai (Egypt), Syria.
First look at 2016:
December 2017
Stock market similar to this one, but with an increase of volatility. After march the markets will start to worry about the pace of the FED rate increase and China Yuan target is about 7 (so further weakening)Definitely avoid indexing. Big issues are brewing in the high yield credit market with the pace of rate increase of the Fed. Each year passing the chance of a big crash increases (think elastic band the more you pull the more likely it will break). Australia will fare better than expected as resources will level off. Banks will go nowhere, but commodities now are oversold . There is still a chance of negative index outcome, but still a minority chance 30% (not negligible)
Oil by year end will be back around USD60/65.
Gold will be higher (still analysis to be done).
USD /AUD same levels or weaker (still some analysis to be done).
Geopolitics. It is a US presidential year. Trump has really good chance to make it, but there are too many Spanish voters in US. Too close to call.
The big space to watch is Turkey versus Iran (yes practically we are in a bloc situation Russia/Iran/Iraq /Syria/Egypt (China as neutral) versus Turkey/Saudi/NATO/USA (NATO starting to be very uncomfortable) is part of the main battle). Saudis are in a bit of an issue as the war on two fronts stretches even their finance, with oil so low.
Europe will proceed with the slow disintegration. The Schengen (free visa) protocol will be restricted if not suspended. Terrorism will continue.
The English referendum on Europe would be a catalyst for issues, but we do not know yet if it is 2016 or 2017.
Russia will try to divide and conquer Europe and trying keep their balancing act between looking scary and just manipulate (without really attacking)
China will stabilize and proceed with reforms, but tensions will remain high.
The common pattern in all this is
After the Global Financial Crisis all came together to save the world….and now they are going back to …save themselves.
The most focal point is the interlink between high yield credit markets (specially energy and US auto loan) and Fed moves.
More to come…
investorpolitico 