The winds of change
On the face of it, the ideological and political differences between the outgoing Obama administration and the incoming Trump regime could not be greater. Barely a single policy is likely to remain unaffected, with everything from public spending to international relations predicted to shift into sharp reverse under the auspices of a maverick who’s made his mark by defying convention throughout the presidential campaign.
In the last months of 2016, the financial markets reacted to Trump’s unexpected victory via a textbook surge in stocks and government yields as well as a significant upshift in the value of the dollar following predictions of increased growth and higher levels of inflation on the wave of announcements regarding deregulation, tax reforms and infrastructure spending.
Oil prices soar as Opec deal nears agreement
In a landmark agreement thrashed out at a November meeting in Vienna, oil cartel Opec has agreed to cut supplies for the first time since the global financial crisis, causing prices to soar to the $50-a-barrel mark. The 13-member-strong cartel is responsible for pumping a third of the world’s oil, so the announcement that it would cut production by around 4%, equating to a reduction of 1.2m barrels a day, was big news on the markets.
The agreement represents an about-turn for Saudi Arabia, which has been committed to rising output over the last two years in a bid to torpedo the profits of US shale and other high-cost producers. The new cuts are designed to push prices upward from a $50 floor.
A memorable year
2016 has certainly been a year of surprises. After what seems like decades of ‘business as usual’ in Europe and the US, the steady march of globalisation and the apparently inexorable rise of liberalism, recent political and economic events have turned the old order upside down.
Donald Trump’s US election win coming hot on the heels of the UK’s vote for EU Brexit, coupled with a worrying slowdown in Chinese economic growth and historically low interest rates have not only created uncertainty on the global stage but are also creating significant risks for the global banking sector, according to leading ratings agency Standard & Poor.
When Britons voted narrowly to exit the European Union in a public referendum earlier this year, they may not have envisaged the ensuing shock to the country’s currency and financial reputation.
But now, with sterling languishing at its lowest value in 40 years and the UK stripped of its Triple-A credit rating, the country is also facing the possible loss of its reserve currency status, should it fail to secure continued access to the European single market.
US ratings agency Standard & Poor has admitted that the British government is risking significant damage to the economy’s growth, with potentially long-term implications for the country’s debt and credit profile. S&P fears that if the UK loses access to the single market, its businesses will suffer incalculable consequences for the foreseeable future.
Free trade not without cost
Is the concept of free trade outmoded? Well, the International Monetary Fund (IMF) has warned that free trade is being seen, increasingly, as a tool that benefits the affluent, cautioning that help is needed for people whose job prospects have been damaged by globalisation so that a fresh case can be made for removing the barriers to international commerce.
In advance of its annual meeting in October, the IMF released a statement from the half-yearly World Economic Outlook study, in which it spotlights weaknesses in the global economy as being largely responsible for the stalling of trade growth over the past few years.
It also acknowledged that protectionist measures in the wake of the financial crisis had ‘not been innocuous’ and advised that anti-trade feelings could harden further, given the current climate.
Fun and games
In June this year, the British public voted in a referendum to leave the European Union. The fallout from what, for many, was a shock result, was nothing short of dramatic and the aftermath left a kingdom that seemed very far from united.
Fast forward to the end of August and while the world has been distracted by the games of the 31st Olympiad, heated discussions between Brexiteers and Remainers have subsided into barbed comments traded across social media and a kind of normality has been restored. Business as usual, then. Well, maybe. But while Usain Bolt is packing his running shoes away, it seems like Brexit hasn’t even left the starting blocks.