2016 has been an interesting year for the markets and the economies worldwide in general. What is even more interesting now is how the markets have reacted so far in 2017, after numerous predictions from world known analysts and global financial houses.
Maurice Obstfeld, the chief economist of International Monetary Fund had stated while presenting the Fund's 2017 outlook back in October that "taken as a whole, the world economy is moving sideways" and added that: "The crisis has left a cocktail of interacting legacies—high debt overhangs, nonperforming loans on banks' books, deflationary pressures, low investment, and eroded human capital—that continue to depress potential investment levels." Bearing in mind his statements, it seems that what one should expect from both developed and developing economies remains fairly vague.
Despite the mediocre growth expected in the developed economies, it appears that in many emerging markets, the outlook for 2017 is actually up and not sideways as Obstfeld put it. India, for example, is expected to have its third continuous year as the fastest-growing major economy in the world, with the IMF projecting a 7.6% increase in gross domestic product. In the case of China however, the IMF estimates a growth of 6.2% in 2017 rather than the estimated 6.6% in 2016. The challenge for China in 2017 is merely the yuan value, which recently fell to a six-year low. China needs to keep its value from falling in order to avoid any capital flights.
Regarding the United Kingdom, which is currently in its exit path from the European Union and the United States, the IMF had estimated a growth of 1.1% and a 2.2% respectively for 2017 in its October Outlook. Although growth has been steady for the U.S. since 2012, the election of Donald Trump seems to have accelerated this trend due to the expected boost to the U.S. economy through the anticipated fiscal stimulus via the increased infrastructure spending. According to Standard & Poor's, earnings growth is expected to accelerate further to about 11% in 2017, a sign that has been characterized as a "bullish" for the market.
On the other side of the Atlantic, Marine Le Pen, the National Front party leader and candidate to the French presidential elections, seems to be making investors very nervous. Essentially, fears over Le Pen's victory are becoming visible in the bond market, where investors have started selling French government debt. It is worth noting that the difference in yields on French and German government bonds is now the largest in nearly four years, suggesting that investors now see French debt as a substantially riskier proposition.
This is merely due to Marine Le Pen's negative stance towards globalization, the Eurozone and the actual membership of her country in the European Union. She has already expressed her determination to hold a referendum in regards to the aforementioned as well as to pull out France from NATO. Since France constitutes the second biggest economy in Eurozone, such an event could drug the common currency into a prolonged period of uncertainty.
The above graphs which were published by Bloomberg and were based on data released by the International Monetary Fund, show the growth projections for all the economies worldwide, including Cyprus.
Already in the second month of 2017 and investors have appeared to be accumulating commodities thus increasing the value of commodity assets under management to record highs since 2014, making 2017 a prominent year for investors wishing to see sizable returns. According to RBC Capital Markets commodity strategist, Mr. Christopher Louney, the global commodity flows on a net basis in January were increased by $3.3 billion, bringing total commodity index assets under management (AUM) to $172.3 billion.
Source: RBC Capital Markets
Gold & Other Mining Stocks
Mr. Louney has highlighted that uncertainty is still one of the main aspects for his gold outlook, revising however upwards the forecast from $1,241 to $1,245 for this year. He underlined that uncertainty amongst investors works in favor of the gold and added that for gold this year we should "expect volatility, but with an upward tilt". Chad Morganlander, portfolio manager at Washington Crossing Advisors, characteristically said that he'd be a buyer of gold at these levels.
On the outset of Donald Trump's victory there was a sense of fear among precious metal investors. As the concerns were fading, precious metals and mining stocks slowly started falling. The rate hike in December 2016 also played negatively for precious metals, and precious metals and their mining companies kept falling. Some investors expected the markets to be shifty for precious metal mining companies after Trump's victory, but that was not the case. Miners are often known to follow precious metals and most of the time, they move in the same direction.
On a YTD (year-to-date) basis, Newmont Mining (NEM) rose by 11.4% while Kinross Gold (KGC), and Iamgold (IAG) increased by 32.2%, and 29.1%, respectively. On the other hand, New Gold (NGD), slipped by 18.0% while the VanEck Vectors Junior Gold Miners ETF (GDXJ) saw a YTD growth of 34.0%.
Analysts have also argued that the silver price will ultimately outperform the gold price especially in the case where the highly inflated paper markets collapse under the pressure of large debt and derivatives.
Based on this chart, 72% of U.S. domestic silver demand was relied upon foreign sources in 2015. Therefore, its silver supply reliance is twice bigger than that of copper (36%) while the U.S. demand for gold experienced a 48% surplus versus its domestic supply. Another reason for silver's performance is the actual amount of physical silver, in total ounces, purchased by investors versus gold.
As indicated in the chart below, during the last six years, the investors bought a total of 1,505 million oz (Moz) of silver bar and coin compared to only 284 Moz of physical gold. Consequently, the investors of precious metals have purchased five times more silver ounces, than gold ounces during this seven year time period. In terms of value however, the total of physical gold investment was far more than that of silver during the same period, but the incredible amount of silver bar and coin demand had a significant impact on the silver market rather than the market of gold.
Wall Street stocks flew to record highs on Thursday and both the U.S. dollar and bond yields increased following President Trump's statements about releasing "something phenomenal in terms of tax" in the next few weeks. The three main U.S. stock indexes finished among records as most sectors achieved gains. The best-performing group was the Financials, which have climbed since the elections, with an increase of 1.4% after three sessions of declines, while energy shares rose by 0.9%.
The Dow Jones Industrial Average increased by 118.06 points, or 0.59%, to finish at 20,172.4, the S&P 500 gained 13.2 points, or 0.58%, to 2,307.87 and the Nasdaq Composite added 32.73 points, or 0.58%, to 5,715.18. The U.S. dollar experience a rise of more than 1% against the yen to a six-day high, the euro fell to the day's low against the dollar, while the dollar achieved one-week high against the Swiss franc. Benchmark 10-year U.S. Treasury note yields were at 2.393%.
It is important to note that the dollar had gained more than 5% against the other major currencies in the six weeks following Trump's election but has returned some of those gains as he has focused more on trade and immigration than fiscal stimulus.
Major global stock indexes moved upwards in general on Thursday with the MSCI all-country world stock index increasing by 0.31% to its highest in two weeks. Shares climbed in Europe as well with the pan-European STOXX 600 Index closing at 0.78% higher.
In regards to oil what is important to note is that it held onto gains with the Benchmark Brent crude increasing by 51 cents at $55.63 per barrel while U.S. light crude closed 66 cents higher at $53.00.