Today I am looking at the key economic trends ready to reign long into the new year and potentially beyond.
Greenback to remain golden
The steady rise of the US dollar has been one of the major economic stories of 2015, and I believe conditions are perfect for the world’s reserve currency to keep on charging. The dollar has trotted back towards the multi-year highs of 1.05 versus the euro in recent days, reflecting expectations of steady monetary tightening by the Federal Reserve in the coming months.
Unlike the Fed, many central banks in developed and emerging regions alike remain on a course of quantitative easing and interest rate reductions to keep their economies afloat . Indeed, the European Central Bank embarked on fresh easing this week, and hinted that further action may be around the corner.
On top of this, I reckon the precarious state of the global economy should also keep safe-haven purchases of the dollar healthy well into the new year and beyond.
Commodities still collapsing
Against a backcloth of worsening supply/demand dynamics, not to mention the likelihood of further dollar strength, I believe the steady slump in commodity values should also continue well into 2016.
‘Doctor Copper’ — so-called because its wide application base makes it a reliable barometer of the health of the world economy — struck out at fresh six-year troughs in recent weeks below $4,500 per tonne, while crude oil prices also remain perched above multi-year lows below $45 per barrel.
Production cutbacks in certain segments by the likes of Glencore and Lonmin, and more recently by Chinese producers in the copper and nickel markets, is a step in the right direction. But until an industry-wide consensus emerges to tackle bloated stockpiles — and while the Chinese economy continues to nosedive — I am convinced commodity prices will continue to head south.
As safe as houses
While the FTSE 100’s losers board has subsequently been dominated by the diggers and the drillers, housebuilders like Taylor Wimpey and Persimmon have been amongst the big winners during 2015, propelled higher by Britain’s worsening homes shortage.
Of course, this problem will take many years to fix, and Halifax estimated this week that average home values should advance by an extra 4%-6% next year. I fully expect forecasts to come in at the top-end of this forecast as sellers remain reluctant to put their homes on the market; rising wages and improving employment levels boost homebuyers’ affordability; and lending conditions remain favourable.
Rates to rumble at current lows
Furthermore, the likelihood of locked interest rates in the UK next year and possibly into 2017 should provide further support to the housing market. Chatter concerning potential Bank of England rate hikes have been doing the rounds for years now, but fears over emerging market economic cooling — not to mention slowing British GDP growth — has prevented Mark Carney from pressing the button.
And with UK inflation continuing to flatline, I see no pressing reason for Threadneedle Street to hike rates from record lows of 0.5%. Indeed, the Monetary Policy Committee voted by a clear 8 votes to 1 at its latest meeting to keep rates on hold.
Brand power to remain boss
I remain bullish over the long-term potential of retail-related stocks in the developing markets of Asia and Latin America, a backdrop of rising affluence levels and surging population growth providing stocks from Apple and Starbucks through to Unilever with brilliant revenues potential.
But with economic growth in these regions expected to cool further in 2016, the importance of brand power is more important than ever as consumer spending power loses steam.
Being able to maintain or even lift product prices in an environment of wider macroeconomic slowdown is impossible to overstate, meaning that companies boasting blue-ribbon, industry-leading brands are in great shape to enjoy splendid sales growth next year.
