Well, that was 2015, how about 2016?

22 December 2015

Falling interest rates

Firstly, Leen points out that 2015 saw some spectacular falls in interest rates, particularly in Europe, where yields on 10-year bonds in Germany fell to as low as 0.07% at certain points during the year. For some bonds with maturity dates up to seven years, yields became negative. Even the Italian and Spanish governments, which faced very high rates not that long ago, have been able to borrow at negative rates for two years. Why have rates plunged so low? It’s largely due to the European Central Bank’s massive bond buying programme, which is intended to suppress rates to stimulate growth in Europe.

Interesting times in China

The Chinese economy grew more slowly during 2015 – expanding at rates of around six or seven percent instead of 10%. Leen says that by the third quarter, China had overtaken Greece as the most important source of investor concern. As the Chinese stock market fell sharply and its currency, the yuan, devalued, uncertainty among investors rose to highs, only twice seen since the global financial crisis.

Oil on troubled waters

Sluggish global growth, coupled with strong supply, pushed oil prices down to under $40 per barrel by December, another low not seen since the global financial crisis in 2009. And finally, the most anticipated economic event of the year, the US Federal Reserve announced a rate rise on 16 December 2015 – its first in nearly a decade.

But stay tuned for 2016

Leen predicts that interest rates and oil prices will rise a bit in 2016 although Chinese manufacturing may continue to slow down. And he poses a few scenarios: a resurgence in the euro crisis if the Greek government fails to implement agreed reforms; a recession in China; and maybe a surprise return of inflation in the US. Hold onto your hats!

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