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ARTICLE ARCHIVES

INTERNATIONAL PERSPECTIVE

Onward to 2017!
International Perspective - December 30, 2016
By Anne D. Picker, Chief Economist

  

Global Markets

In thin holiday trading, global equity indexes marched on to their respective year end values. With many traders closing their books for the year prior to Christmas and several markets closed for both Monday (Christmas observed) and Tuesday (Boxing Day) after Christmas, investors were hard to find for those markets that were open. Global trading in 2016 was sparked by two unexpected major events — the British vote to withdraw from the European Union in late June (aka Brexit) and the election of Donald Trump as U.S. president in November.

 

Globally, most equity indexes advanced in December — only the Hang Seng, STI, Shanghai Composite and the Sensex retreated. It was a more mixed picture for the year however. The SET added 19.8 percent in 2016 followed by the S&P/TSX (17.5 percent), Jakarta Composite (15.3 percent), the FTSE (14.4 percent) and the Dow (13.4 percent). Losses ranged from 12.3 percent (Shanghai Composite) to 0.1 percent (STI).


 

Global Stock Market Recap

  2015 2016 % Change
Index Dec 31 Dec 23 Dec 30 Week Dec 2016
Asia/Pacific
Australia All Ordinaries 5344.6 5675.1 5719.14 0.8% 3.9% 7.0%
Japan Nikkei 225 19033.7 19427.7 19114.37 -1.6% 4.4% 0.4%
Topix 1547.30 1543.82 1518.61 -1.6% 3.3% -1.9%
Hong Kong Hang Seng 21914.4 21574.8 22000.56 2.0% -3.5% 0.4%
S. Korea Kospi 1961.3 2035.9 2026.46 -0.5% 2.2% 3.3%
Singapore STI 2882.7 2871.1 2880.76 0.3% -0.8% -0.1%
China Shanghai Composite 3539.2 3110.2 3103.64 -0.2% -4.5% -12.3%
India Sensex 30 26117.5 26040.7 26626.46 2.2% -0.1% 1.9%
Indonesia Jakarta Composite 4593.0 5027.7 5296.71 5.4% 2.9% 15.3%
Malaysia KLCI 1692.5 1617.2 1641.73 1.5% 1.4% -3.0%
Philippines PSEi 6952.1 6563.7 6840.64 4.2% 0.9% -1.6%
Taiwan Taiex 8338.1 9078.6 9253.50 1.9% 0.1% 11.0%
Thailand SET 1288.0 1510.0 1542.94 2.2% 2.2% 19.8%
Europe
UK FTSE 100 6242.3 7068.2 7142.83 1.1% 5.3% 14.4%
France CAC 4637.1 4839.7 4862.31 0.5% 6.2% 4.9%
Germany XETRA DAX 10743.0 11449.9 11481.06 0.3% 7.9% 6.9%
Italy FTSE MIB 21418.4 19345.0 19234.58 -0.6% 13.6% -10.2%
Spain IBEX 35 9544.2 9367.7 9352.10 -0.2% 7.6% -2.0%
Sweden OMX Stockholm 30 1446.8 1525.8 1517.20 -0.6% 2.4% 4.9%
Switzerland SMI 8818.1 8232.6 8219.87 -0.2% 4.4% -6.8%
North America
United States Dow 17425.0 19933.8 19762.60 -0.9% 3.3% 13.4%
NASDAQ 5007.4 5462.7 5383.12 -1.5% 1.1% 7.5%
S&P 500 2043.9 2263.8 2238.83 -1.1% 1.8% 9.5%
Canada S&P/TSX Comp. 13010.0 15328.2 15287.59 -0.3% 1.4% 17.5%
Mexico Bolsa 42977.5 45173.5 45642.900 1.0% 0.8% 6.2%

 

Europe and the UK

Equities here were mixed in the holiday shortened trading week. The FTSE, CAC and DAX advanced for a fourth consecutive week. However, the SMI, MIB, IBEX and OMX declined in thin trading. All posted healthy gains for the month of December with the MIB turning in the best performance despite Italy's major banking problems.

 

For the year 2016, the FTSE posted the best performance gaining 14.4 percent. It was trailed by the DAX, up 6.9 percent and both the CAC and OMX with gains of 4.9 percent. While the MIB posted the best gain for December in Europe, it lost the most for the year — down 10.2 percent.

 

The FTSE closed 2016 at a record high thanks to a rally in mining stocks and tumbling sterling after June's shock Brexit vote. The index, which is dominated by global companies, closed at a life-time peak of 7,142.83 on Friday, surpassing the previous record of 7,129.83 set in October 2016. Analysts said the sharp decline in sterling helped the index's export-oriented companies, which generate a large portion of their revenues in dollars.


 

Asia Pacific

In a holiday shortened week, equities were mixed. There was little new economic data outside Japan — most investors had locked away profits for the year. Trading volumes remained thin in the absence of any market-moving news and as investors preferred to stay on the sidelines heading into the New Year. For the week, shares retreated in Japan, South Korea and Mainland China. In December, four of 12 indexes declined — the Hang Seng (down 3.5 percent), STI (down 0.8 percent), the Shanghai Composite (down 4.5 percent) and the Sensex (down 0.1 percent).

 

There was a wide disparity in equity performance during 2016. For the year, the Shanghai Composite tumbled the most with a loss of 12.3 percent. At the opposite end of the range, the SET jumped 19.8 percent, the Jakarta Composite advanced 15.3 percent and the Taiex added 11.0 percent. Overall, Asia's equity markets ended 2016 slightly higher, despite a number of unexpected global events that had threatened to throw markets into disarray. With China's Shanghai Composite the main exception, major Asian stock markets rose for the year. Australia's All Ordinaries rose 7.0 percent, while both Japan's Nikkei and Hong Kong's Hang Seng added 0.4 percent.

 

There were a number of global surprises that affected Asia's equity markets, including the Brexit vote in June and Donald Trump's victory in the U.S. presidential election in November. Analysts were surprised by the stock market rally that followed Mr. Trump's win. That was opposite earlier expectations of what would happen in the event of a Trump win.

 

Meanwhile, the Shanghai Composite Index tanked 12.3 percent for the year, as regulators there cracked down on leveraged purchases of stocks by insurance companies and as the yuan fell about 6.5 percent against the U.S. dollar for the year. To be sure, China's declines could have been much steeper. In January, the Shanghai index plunged as much as 25 percent, as a circuit-breaker mechanism for the stock market, introduced to reduce volatility, set off a global market panic, forcing authorities to shelve the system.

 

The People's Bank of China said on December 30 that it will emphasize a monetary policy that is prudent and "appropriately neutral" in terms of the level of tightness in 2017. The statement was made after the fourth quarter meeting of its monetary policy committee. The PBoC also said that China will keep the yuan exchange rate "basically stable" at a reasonably balanced level, further promote market-based interest rates and the yuan's formation mechanism. The PBoC also said that it will use "multiple policy tools" to maintain basically stable liquidity and realize reasonable growth in money, credit and social financing.


 

Currencies

The U.S. dollar retreated against all of its major counterparts in the week including the euro, pound sterling, yen, Swiss franc and the Canadian and Australian dollars in thin trading. When compared with the end of 2015, the U.S. currency advanced against the euro, pound, Swiss franc and the Australian dollar. However, it retreated against the yen and Canadian dollar.

 

The pound tumbled after the Brexit vote despite resilient economic data that indicated the country continues to grow. At its low point, it briefly skidded to a 31 year low of $1.18 during an October flash crash but has recovered since then. Sterling was down over 16 percent on the year. The euro slid towards parity with the U.S. dollar with many analysts forecasting that it will hit parity in 2017.

 

Japanese equities continued to benefit from the slumping yen as seen very vividly in the graph above. The yen was hard hit by Donald Trump's election reversing a nearly 10 month period of strengthening. The drop fueled equities and was positive for exporters — a cheaper yen makes exports more price competitive abroad and helps repatriated profits.

 

The Chinese yuan ranked among the worst-performing Asian currencies in 2016, falling 6.5 percent as rising U.S. bond yields and a strengthening dollar helped accelerate capital outflows from China.

 

Expectations for a weaker yuan have contributed to significant capital outflows as China's foreign currency reserves fell to the lowest level in more than five years. As Chinese firms step up overseas investment, which also contributes to capital outflows, policymakers announced plans this week to further open China's markets to foreign investment.


 

Selected currencies — weekly results

2015 2016 % Change
Dec 31 Dec 23 Dec 30 Week 2016
U.S. $ per currency
Australia A$ 0.7288 0.717 0.722 0.6% -1.0%
New Zealand NZ$ 0.6833 0.688 0.695 1.0% 1.7%
Canada C$ 0.7231 0.739 0.744 0.7% 2.9%
Eurozone euro (€) 1.0871 1.045 1.053 0.8% -3.1%
UK pound sterling (£) 1.4742 1.228 1.233 0.4% -16.3%
Currency per U.S. $
China yuan 6.4937 6.946 6.945 0.0% -6.5%
Hong Kong HK$* 7.7501 7.759 7.753 0.1% 0.0%
India rupee 66.1537 67.825 67.924 -0.1% -2.6%
Japan yen 120.2068 117.350 116.810 0.5% 2.9%
Malaysia ringgit 4.2943 4.474 4.486 -0.3% -4.3%
Singapore Singapore $ 1.4179 1.447 1.145 26.4% 23.9%
South Korea won 1175.0600 1202.850 1205.830 -0.2% -2.6%
Taiwan Taiwan $ 32.8620 32.159 32.326 -0.5% 1.7%
Thailand baht 36.0100 35.959 35.810 0.4% 0.6%
Switzerland Swiss franc 1.0014 1.0274 1.0174 1.0% -1.6%
*Pegged to U.S. dollar
Source: Bloomberg

 

Indicator scoreboard

Germany

December Ifo survey reading was 111.0, up 0.6 points from its unrevised November reading for its third increase in the last four months and its strongest result since February 2014. The improvement was led by current conditions which were up 1 point to 116.6, their fourth advance in a row and equaling their highest level since November 2011. Expectations were more subdued, edging just 0.1 point firmer to 105.6 and failing to reverse November's 0.5 point decline. Among the major sectors, morale was up 0.7 points at 15.4 in manufacturing, 1.8 points at 13.2 in construction and 2.7 points at 17.8 in wholesale. However, retail was flat (9.4) and, less promisingly, the separate service sector survey recorded a 4.3 point drop in its climate indicator to 31.7, its lowest mark in four months.


 

United Kingdom

The final estimate of third quarter gross domestic product was revised upward to a gain of 0.6 percent on the quarter. However, earlier revisions (the second quarter is also 0.6 percent) made for a minor downward adjustment to annual growth which now stands at 2.2 percent after 2.3 percent in April through June. Household consumption was up 0.7 percent on the quarter while gross fixed capital formation was up 0.9 percent. With government final expenditure flat and inventories sharply higher, total domestic demand expanded 1.8 percent on the quarter following a 0.3 percent rise in the second quarter. However, net trade subtracted a hefty 1.2 percentage points off quarterly growth as exports fell 2.6 percent and imports rose 1.4 percent. This was reflected in a third quarter current account deficit which, at 5.2 percent of GDP, was the most substantial since the fourth quarter of 2015.


 

Asia/Pacific

Japan

November industrial production index was up 1.5 percent on the month and 2.9 percent from a year ago. The monthly growth reflects stronger output in transport equipment, electrical machinery & general-purpose, production & business oriented machinery. This was offset by weaker output of ceramics, stone & clay products, plastic products and pulp, paper & paper products. METI expects further gains in industrial output in the near-term, forecasting the index to advance by 2.0 percent in December and by 2.2 percent in January.


 

November household spending dropped 1.5 percent from a year ago after slipping 0.4 percent in October. On the month, spending was down 0.6 percent. The decline in annual spending reflected weaker spending in most major categories. Spending on food, in particular, fell 3.4 percent on the year after a drop of 1.0 percent in October, with stronger increases in the price of fresh food (as reported in today's CPI data) likely contributing to this drop in spending. Spending on housing declined 7.7 percent on the year after falling by 1.0 percent in October, while spending on fuel, light and water charges was up 1.2 percent.


 

Americas

Canada

October monthly GDP dropped 0.3 percent after increasing for four consecutive months. Widespread declines in manufacturing output and lower oil and gas extraction were the major contributors to the decline. On the year, GDP was up 1.5 percent, down from 1.9 percent in September. Goods producing industries contracted 1.3 percent as manufacturing, mining, quarrying & oil & gas extraction, construction, utilities and the agriculture and forestry sector all declined in October. However, service producing industries edged up 0.1 percent, mainly due to increases in real estate & rental & leasing as well as retail & wholesale trade. The public sector (education, health and public administration combined) also edged up. The finance & insurance, administrative services, accommodation & food services and transportation & warehousing services sectors declined. Manufacturing output contracted a monthly 2.0 percent, the largest monthly decline since December 2013. Both durable and non-durable manufacturing were down, reflecting a lower volume of exports of manufactured goods.


 

Bottom line

2016 wound down quietly after a tumultuous year with two major unexpected events — the Brexit vote to leave the European Union in the United Kingdom and the election of Donald Trump as U.S. president. There was little new economic data in the last two weeks of December.

 

The New Year begins with an avalanche of new economic data for investors to absorb. 2016's problems will continue to dog investors. Brexit, as it continues to lumber its way through the UK government and the European Union, will continue to draw investors' concerns. And investors will surely be watching the unfolding of President-elect Donald Trump's policies after his inauguration on January 20. Meanwhile, there will be economic data to monitor. A host of purchasing managers surveys will be posted globally. The week will end with the U.S. employment report for December — everyone will be watching!


 

Looking Ahead: January 2 through January 6, 2017

The following indicators will be released this week...
Central Bank activities
Jan 4 United States FOMC Minutes Published
 
Europe
Jan 2 Eurozone Manufacturing PMI (December)
Germany Manufacturing PMI (December)
France Manufacturing PMI (December)
Italy Manufacturing PMI (December)
Spain Manufacturing PMI (December)
Jan 3 Germany Unemployment (December)
UK Manufacturing PMI (December)
Jan 4 Eurozone Composite & Services PMI (December)
Germany Composite & Services PMI (December)
France Composite & Services PMI (December)
Italy Composite & Services PMI (December)
Spain Composite & Services PMI (December)
Jan 5 UK Services PMI (December)
Jan 6 Eurozone Retail Sales (November)
Germany Manufacturing Orders (November)
 
Asia Pacific
Jan 2 China Manufacturing PMI (December)
India Manufacturing PMI (December)
Jan 4 Japan Manufacturing PMI (December)
Jan 5 Japan Composite & Services PMI (December)
Jan 6 Australia Merchandise Trade Balance (November)
 
Americas
Jan 5 Canada Industrial Product Price Index (December)
Jan 6 Canada Labour Force Survey (December)
International Trade (November)

 

Anne D Picker is the author of International Economic Indicators and Central Banks.


 

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