The Market Corner: The Month in Review "The Year in review"
By Filippo Lecchini
The year in review
2017 is turning to an end and even the least sentimental among us tend to look back and see what happened and where they are with their professional goals, their careers, and personal life. This was a busy year at Phillip Capital and as we look forward to 2018 we thought is time to recap the history so far.
Even though it feels like a long time has gone by a new President was sworn in earlier this year. Regardless of how anyone felt about the results of the 2016 elections the new Administration was expected and turned out to be very different from those who preceded. Healthcare, Tax Policy, Infrastructure, deregulation, international trade and immigration were some of the areas in play with extensive ramifications for the markets. Bitcoin started its run fueled, among other things, by Chinese capitals looking to avoid government controls. On January 25th the Dow Jones closed above 20,000.
Several commodities rallying hard and noticeably Iron Ore made an all-time high after the other. Late in 2016 Opec tried to stabilize oil prices also involving not Opec Countries. Every attempt however seemed conditional on production cuts and their credibility, the driver of the action throughout the year possibly extending into 2018.
The elections in the Netherlands opened a year of consultations all across Europe. Political considerations notwithstanding the markets were looking for stability as a number of anti-system and against the status quo parties and movements seemed to be gaining ground everywhere. This was the first of several situations where the traditional and moderate candidates prevailed without completely defeating the alternative. A long anticipated rates hike was announced at the Federal Reserve Meeting.
The bond market stabilized after a spell of rising yields and that while the equities rally continued. Inflation, an afterthought for the better part of the last decade, resurfaced in the data and was greeted somewhat favorably. The first attempt at healthcare reform was unsuccessful, other attempts will follow but the outcome will not change.
The equities market rally raged on despite a surprise strike of US forces in Syria and sign of mounting tensions with North Korea. Volatility remained subdued with corporate earnings supporting the market’s new highs. The French elections see again the defeat of the anti-system candidate.
Another FED hike, the second of the year. At the June meeting the general strategy started taking shape and while rates moving higher were not much of a surprise the markets started thinking about the unwinding of the Quantitative Easing program expected to commence in the fall. A massive portfolio of securities to be progressively liquidated in the markets. Meanwhile the grains market was on fire. Heavy rain in Europe and drought in the US were causing shortages with the Minneapolis Grain Exchange setting a record after the other.
July and August
Lots of back and forth on the political front but little action. The economic growth numbers turned out to be positive whereas the employment numbers seemed a bit soft. Not unusual in the summer for technical reasons, the fall showed some big rebounds.
Congress in the US came back from a recess with the immediate priority of avoiding a Government shutdown. Contrary to any expectation a temporary fix was quickly put in place until the end of the year. Hurricane Harvey and Irma hit various states in the south and the Caribbean, causing plenty of destruction and requiring emergency measures at all levels, including Government spending. The German elections confirmed Angela Merkel at the helm even though going into yearend there is no clarity on which coalition should support her Government.
After rallying hard since the beginning of the year Bitcoin and the other crypto currencies had a sharp correction following the ban of initial coin offerings and crypto exchanges in China.
The House of Representatives approved a proposal for tax reform in the US. In the meantime the equity markets resumed their run as well as Bitcoin that shrugged off any concern from the September’s sell off to make a new high after the other.
The US Senate approved a tax reform bill as well that now will need to be reconciled with the House’s version, before the President can sign it into law. CBOE and CME announce the listing of Bitcoin futures contracts.
At the time of writing a lot is on the horizon. While Congress finalizes the tax bill the equity markets and the crypto currencies keep running. They are not looking back. The CBOE and CME Bitcoin futures will be live by 12/18 and the FED, with a New Chair of the Board of Governors, will meet to release a decision on rates on 12/13. A third hike for the year is the consensus expectation. Following a temporary solution in September a new agreement need to be reached to avoid a US Government shutdown on 12/31.
Happy Holidays to All.
RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance. The information contained herein is provided to you for information only and believed to be drawn from reliable sources but cannot be guaranteed; Phillip Capital Inc. assumes no responsibility for errors or omissions. The views and opinions expressed in this letter are those of the author and do not necessarily reflect the views of Phillip Capital Inc. or its staff.