2017: Good year for markets - Rabobank

In view of analysts at Rabobank, without doubts the markets had a very good year as stocks rallied across the globe to all-time highs in 2017, which was also the least volatile year on record.

Key Quotes

“A synchronised recovery in the global economy, a more gradual than expected pace of monetary policy normalisation by the Fed raising rates on three occasions and the ECB actually extending its asset purchasing programme, albeit at a reduced pace, until at least September 2018 generated impressive rally in stocks with the S&P 500 Index rising more than 19%. For the first time since the global financial crisis risk assets outperformed the S&P 500 as the MSCI EM Stock Index surged almost 46%. Apart from solid economic activity and still accommodative monetary policies provided by major central banks emerging markets also benefited from US President Donald Trump refraining from ripping apart, at least for now, NAFTA and from implementing measures that could undermine globalisation.”

“With stocks having a spectacular year, the richest people increased their wealth by USD 1 trillion – more than four times 2016’s gains, according to Bloomberg. Meanwhile, those who don’t own any assets were left further behind as the pace of wage growth remained generally sluggish perhaps sowing the seeds of populism and nationalism. The inequality gap - that could lead to serious negative consequences over the mid-term horizon - is likely to widen further if strategists surveyed by Bloomberg are proved to be correct expecting on average the S&P 500 Index to rise to 2,855 by the end of 2018. With tax cuts providing corporates with even more funds for share buybacks the bulls must be confident that 2018 will mark the longest rally in history. In fact, US stocks set another record highs on Tuesday.”

“One of the main stories last year was a weak US dollar, which depreciated against all its G10 peers and the majority of EM currencies. At the very early stage of 2018 sentiment towards the greenback remains bearish. The market does not seem to be convinced that tax cuts will sufficiently boost growth in the US for the Fed to accelerate the pace of tightening.”

“The euro was the best performing G10 currency appreciating more than 14% against the US dollar in 2017 on the back of rising market expectations that the ECB will start withdrawing its unprecedented stimulus gradually. Macron’s victory in the French presidential election also provided the euro with support. Strong growth across the Eurozone made the single currency attractive for investors as well. Our Senior FX Strategist Jane Foley revised her 6m forecast for EUR/USD to 1.22 from 1.20 based on the assumption that strong Eurozone economic data will continue. The Eurozone manufacturing PMI rose to a record high of 60.6 in December driven by the fastest pace of expansion on record in Germany, Ireland and Austria. Even Greece – usually a laggard – set the best result for almost a decade.”