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The End of the Year as we Know It ...

15 January 2018

...and markets feel fine. Next year in a sentence: welcome back volatility, we’ve missed you …


It’s that time of year when every journalist, asset manager, broker and London cabbie gives you their outlook for 2018. I’ve been through rather a lot of them, so you don’t have to. Summarised here:

The world: while pockets of scarily high debt and leverage exist, most agree prospects are largely positive for the global economy.

Rates and inflation: A slow and steady normalisation of central bank policy is just the tonic, apparently. But could also lead to some extreme bumps in the road. Expect three or four rate hikes in the US, and an end to QE in Europe. Could 2018 be the year inflation starts to tick up at last? Many think so.

US: Everybody hates Trump, publicly, but privately they love his deregulation and (possibly soon to be enacted) tax reforms. Outlook for the US economy is for more growth. Especially since The Donald is due to announce a juicy infrastructure plan soon.

Eurozone: If the Germans can ever succeed in forming a government, the outlook is positive for Europe next year (2%+ growth). Commentators tend to agree Europe is moving into an ‘expansion phase’ of the credit cycle. But there’s still too much debt in the system.

UK: Most outlooks are neutral on gilts as investors wait to see what happens in Brexit, part II. Sterling will be stronger, say some, but prone to volatility. Growth expected to be lower next year. FTSE will be bumpy. 

China: People are a bit jumpy about China in 2018. A distinct feeling of unease founded upon recent equity sell-offs. Merely a bit of profit taking, or a sign of something scarier to come? Beijing is tightening regulation and cracking down on leverage. Watch out for policy errors.

The worry list:

  • Too much debt, everywhere
  • Too much leverage/risk – especially in high-yield bonds
  • Central bank's hike too quickly and kill the patient
  • Bond market crash
  • Equity bubble pops
  • China slowdown
  • Bitcoin doesn't collapse and we all feel like mugs

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