Interest Rates
Markets finally witnessed the first rise in US interest rates for over 9 years with the US Federal Reserve increasing the ‘Fed Funds’ rate by 0.25% to 0.5%.
Markets took this very well telegraphed move in their stride with both US equities and the dollar rallying. Markets were buoyed by comments from Fed chair, Janet Yellon saying that future increases would be ‘gradual’ as the markets had feared a faster pace of increase.
Foreign Exchange
Three big foreign exchange shocks stand out for 2015: January’s depegging of the Swiss Franc, August’s Chinese renminbi devaluation and December’s euro correction. Each was a result of a market caught out by central bank action. Throw in wild intraday movements, and unexpected interest rate decisions, and it is small wonder that many currency traders are ending the year exhausted and out of pocket. Overall the trend of the year has been US dollar strength supported by a higher US interest rate outlook.
Commodities
Brent crude slumped to its lowest level since 2004 as oil producing countries around the world flooded the markets with increased supplies. The price of oil due for delivery in February has fallen to $36.50 per barrel bringing oil’s loses for the year to 37 pc, and a far cry from the $115 per barrel in June last year.
The recent bout of weakness in commodity prices has been worsened by the decision of the US Federal reserve last week to raise interest rates. Higher interest rates have caused the US dollar to strengthen. As with most commodities, the price of oil is quoted in US dollars, making it more expensive in other currencies as the dollar rises.
The price of oil has come under renewed pressure in the three weeks since OPEC’s last meeting, when the cartel of oil producers decided not to cut production.
Equities
UK: London equity markets that are heavily weighted towards commodities-focussed companies have suffered e.g. Shell, BP. Indeed, it can be argued, the FTSE 100 index, with such exposure to international energy and commodity companies, is no longer representative of the British economy: In a year in which the UK economy grew at one of the fastest rates in the developed world and employment hitting record levels with inflation at 50-year lows, the index is closing the year just above the 6,000 level, a long away from the 7,122.74 level reached in April this year.
The US S&P 500 index is now marginally down for the year having fallen 5.5% in December but major European markets (ex UK) are still up.
Miscellaneous
M&A has had a record year in 2015 with $4.6 trillion worth of deals completed. Driven by tie-ups in the pharmaceuticals, energy and consumer sectors. Many of the deals have been for tens or hundreds of billions of dollars, including tie-ups between drugmakers Pfizer and Allergan, brewers AB InBev and SAB Miller, and oil groups Royal Dutch Shell and BG Group.
Hunger for growth in a weak economic environment, cheap financing and continued pressure from activist shareholders to boost returns drove many companies to combine. Dealmakers have said these fundamentals remain broadly intact for 2016.
Equities
S&P 500: 2010
Nasdaq: 4950
FTSE 100: 6050
Bonds – 10 Year Government Yields
US 2.20%
EU 0.55%
GB 1.82%
Foreign Exchange
EUR/USD 1.0900 (1 euro buys 1.0900 dollars)
GBP/USD 1.4900 (1 pound buys 1.4900 dollars)
Commodities
OIL: Brent: 36.00 (dollars per barrel)
GOLD: 1070 (dollars per ounce)
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Paul McCormick
