As we come to the end of a momentous year in the financial markets, we look to Europe with expectations that 2017 will be dominated by the most unruly and unpredictable of factors – human beings in voting booths.
Europe’s political and economic climate in recent years has been compared to a sailing voyage across the Atlantic: Long, boring stretches of hard slogging punctuated by intermittent bouts of terror. Such has been Europe recently with its slow growth and occasional regional crisis threatening the survival of the European Union or the euro.
This next year promises to deliver very little that’s boring, however - with the unusual exception of the European Central Bank. This month’s ECB meeting seemed to be a proactive attempt to take away any thoughts of significant movement in rates or quantitative easing policy for the year.
The driver of 2017 will be politics. Elections are scheduled in the Netherlands, France and Germany. The French election will be the most closely watched, as it serves as the most significant barometer of the populist backlash against the elites in Europe. The German election will be a referendum on Angela Merkel’s administration and strength of her center-right government.
The other major development will be the implementation of Brexit. It is clear that British Prime Minister Theresa May will not dictate terms but will accommodate the messy negotiations required to achieve a united front with Parliament. If she and British lawmakers forge a successful approach in transitioning out of the European Union it could become a blueprint for other countries to implement a similar exit strategies.
When it comes to currencies, we continue to think the dollar will be strong against European currencies, but so much of the good news on the dollar has already been priced into that markets that we believe this pace of strength will abate.
My View: Next year will no doubt be fascinating. We look forward to experiencing it with you – our readers and viewers. This closes the chapter on Global Perspectives for 2016. Have a wonderful holiday season and we wish you a happy, healthy and prosperous New Year.
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