Being this the last post of the year, let me start by saying thank you. Since starting this blog in February I have enjoyed tremendously writing about the markets, now I’m looking forward to what 2017 will bring and hoping that you have enjoyed my post as much as I did. Truth be told 2016 has been an amazing year full of extreme moments and I think its worth it to make a resume of the most important in the last post of the year.
When we think about 2016, the first thing that comes to mind is the oil barrel price hitting its lowest price in 26 usd and the OPEC lost credibility in its Qatar meeting. These incidents increased the market’s volatility leading the traders to make fast decisions with any available information. Talking about Oil, one thing the 2016 has proven is a significant shift between the world producer’s dynamics, and that’s why the OPEC tried over and over not only a production agreement between its members but one that also includes non members, and partially achieve it in November. However, the future is far from clear because this agreement represents only 60% of the world’s supply leaving out some mayor producers such as US and China.
But the surprises were just beginning, perhaps the most significant fact not only for it’s inherent importance but for the market inability to predict it (myself included) was the Great Britain exit from the European Union, or as it came to be called Brexit. Although the Brexit economic effects will be more visible in the middle run, it was the first real signal of the power of the populist and protectionist political postures with the common people. It also generates the change in prime ministers with the exit of Cameron and the arriving of Theresa May who has shown a hard posture and a desire of exit the Union as soon as possible.
Talking about populist and strong protectionist political postures, its impossible not to talk about the other big geopolitical surprise of the year, Donald Trump election as US president. In this case the political future has become unsure, however, the markets provide us with its reading in 2 important components, this first one is the expectation in a rise in public expense in order to push the economy which generates higher inflation expectations and a higher public bond yield (Lower price), meanwhile in there’s been an important rally in the equity market in response of the expectation of deregulation in some sectors.
On the other hand, the local market has been the scenery of the Banco de la República struggle for guide the price level to the inflation target. This rise in prices were caused by external forces that reduce the food supply such as climatic phenom and the truckers strike. If the reduction tendency for the past 4 months can be taken as a sign of price converging to the target, the surprising rate cut in December meeting has increase the market expectation of next year decisions from the Bank and its new director.
Back in February it told you this was going to be hell of a ride and I believe 2016 has fulfilled that expectation, I invite all of you to keep reading my weekly posts in which I keep analyzing the markets with an out of the box approach bring together different elements in a way easy to understand for everybody not just economist or expert in finance but for the simple reader with an interest in the markets. In 2017 we’re going to take Rogue Economist to the next level with premium content available in the webpage which will help go in depht in some of the economic and financial concepts in an easy way so everybody can understand them. So if the 2016 was great in 2017 the best is yet to come.
Happy new year and see you all next week!
*This post reflects the author opinion and must not be taken as an investment recommendation