INVESTORS often start the calendar year in a buoyant mood, only to be caught out by unexpected events. It is almost inevitable that the consensus will be proved wrong in some respects, not least because the views of most investors will already be reflected in market prices.
So this column would like to suggest five potential surprises for 2016. The definition of a surprise is something that the consensus (as judged by betting sites or polls of fund managers) does not expect.
The first surprise may be that the dollar weakens, not strengthens. The consensus view is that the Federal Reserve, having pushed up rates before Christmas, will tighten monetary policy two or three more times in 2016. Higher rates will make investors eager to buy the dollar, especially as both the European Central Bank and the Bank of Japan will keep their rates near zero. However, the dollar has already had a very good run, so higher rates may already be priced into the currency. As it is, investors seem to doubt that the Fed will tighten as much as the central bank currently projects. The actual outcome may be feebler still (see article).
The second surprise may be too familiar to deserve the name. Commentators have been calling an end to the...Continue reading
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