We are going to consider the main market global factors and try to identify the main market trends, which we expect to influence the investors in the coming week of the New Year. First of all, despite the political tension caused by Brexit and elections in the United States, global markets rose for the year by approximately 7-9%, with the best results in the US and UK, where markets updated the historical highs.
Besides, at the beginning of the new 2017 year, there are several factors that affect the mood of the players, and will shape the market sentiment at the beginning of the new month. The main are positive economic data, along with supporting policies of major central banks, and implementation of Trump preelection strategy and relevant sectors growth.
Several strong trends in the capital markets identified themselves in 2016. Important statistics data we entered the New Year also worth noting . As for the data that will be published this week in Europe and in the US, we expect US job data that will hopefully shed some light on unemployment rate in US. Finally, the new administration in the US, which finally coming into its power, has a powerful impact on the big picture.
Global capital market and US labor market data
The last three months of 2016 were marked by a powerful US dollar gains amid rising US government bonds yields. This resulted in a capital outflow from emerging markets and China market as well. However, the decline in yields, which we saw in the last December days followed by sudden weakening of the US currency, puts question-whether this process has ended and what happened? Was it a kind of global capital flows reversal. If the drop in the yield and the related US weakening were caused by pre-holiday decline in trading activity or fiscal year ending, or some technical factors, we should expect the continuation of this trend- US dollar gains as most players will return from the holidays. If this is capital return to emerging markets (this may indicated by emerging markets gains in the last days of 2016) or the global capital relocation from bonds into stocks, we should expect a change in the balance of power in the foreign exchange market, US dollar decline, and of course, the bond markets decrease. In this connection, US labor market data for December represent the most important set of this week data. If the data will weak - this can lead to increased US dollar technical correction. However, if we consider the wider horizons of this year, we continue to believe in the American currency gains at least in the next six months. The divergence of world central banks monetary policies will continue to have a decisive impact on the foreign exchange market in 2017. Related to this, we can expect a further European currency decline. Looks like Japanese yen will be weak throughout the year as well.
First, this year we begin with Chinese Industrial PMI data for December. PMI came at 51.9 compared to 50.9 last month, and is the strongest PMI since the beginning of 2013. It is clear that the data point to accelerating in China industrial sector and will be viewed positively by investors. Positive trends in China manufacturing sector will largely affect the economic performance of the entire Asian region. The second most important data in our opinion is the Eurozone PMI data which came before New Year holidays. Eurozone PMI for December came out at the highest level in the last five years and reached 54.9 points. These figures speak of more than average acceleration in the European industry. This can provide some positive market sentiment in the New Year beginning.
The new administration in the United States
In the last year, significant gains in US markets started after the presidential election, won by the Republican candidate Donald Trump. This formed positive expectations on the market, that the elected president will pursue a expand policy to reduce corporate taxes and support the economy, which should accelerate US GDP growth, create new jobs. All this is according to Tramp election program. However, there is delicate point in this situation that is Tramp relationship with US Congress. We think that Trump's inevitable reaction to recent sanctions against Russia by Obama last days of 2016 can serve as an indicator of the true state of affairs. This will be the president-elect's first manifestation of political independence and readiness to pursue his own course.
Brent oil gained from $51 to $57 in the last month of the year, amid OPEC+ agreements and expectation on production cuts. Needless to say that this has a positive impact on the stock market. However, the gain is fully priced in the current market price. Further oil gains will lead to the return of US oil shale producers. Even with lighter industry perspectives and China positive production outlook, the world industry will take some time to digest the overproduction. We can say that in the medium term, oil will continue to remain under pressure. From a technical point of view, 2016 highs now become strong support level; the bulls will certainly take advantage of this situation. Brent gain in the area of $ 60 can be a matter of a few days.