While the world is focusing on Christmas and what to buy for that person who just won’t be happy with anything, investors cannot afford to be that short-sighted. Coming to the end of a tumultuous year can lead to soul-searching, but taking your focus off these markets as we head into 2017 could be a very expensive mistake. In an effort to combat this we think there are three things that market participants need to be aware of in early 2017.
The First 100 days
President Trump will be inaugurated on January 20 and will begin the most important first 100 days of a presidency since WW2. While headlines are being made and tweets are being sent now, policy is not being struck yet. In the afternoon of that Friday, the administration takes control and the policy clock is reset to zero.
Will Trump reverse his position on China? On the campaign trail Trump threatened to label China as a currency manipulator on his first day in office. He can do this unilaterally, provoking an instant 15 percent tariff on Chinese goods into the U.S. for a period of 150 days. And how does China react?
Similarly, we must ask if this equity and USD rally predicated on stimulus and subsequent inflation will fizzle? Within that first 100 days we will find out if the 45th President of the U.S. is another example of a man campaigning in poetry and governing in prose.
Greece
Yeah, it’s back! In the past week, Eurozone finance ministers have threatened to cut Greece off again following spending promises by Prime Minister Tsipras that “appear not to be in line with the Eurozone’s agreements.”
Prime Minister Tsipras had promised tax relief for some islands that had been hit hardest by the migrant crisis as well as the resumption of a Christmas bonus to pensioners totaling around 617 million euros.
This has not gone down well in Brussels, and plans for debt relief from the European Stability Mechanism have been postponed. Greek bond yields are rising as a result and we expect further fallout in the New Year.
Article 50
If there is one thing that rivals a Trump presidency for uncertainty it is Brexit. Following a vote in the UK parliament we know that Article 50 – the law that allows a member state to leave the EU – will be triggered by the end of Q1, but little else is close to being decided.
The economic footing in the UK is starting to wobble with a recent fall in employment and fears of a jump in inflation putting pressure on pay packets and those voters who cast their ballots to exit the EU. There are a few more twists and turns in this story before the negotiations even begin.
Jeremy Cook is the chief economist at World First UK and one of the UK’s leading voices on foreign exchange.
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