2016: Key market drivers for the year ahead

For the world’s markets, 2016 looks set to be another challenging and volatile year. In politics, the US election promises to be a headline event but other countries’ voters will also be heading to the polls. In Europe, for example, a potential EU referendum in the UK and the rise of extremist parties could have profound implications for the future of the world’s largest economic block.

On the macro-economic front, world GDP growth looks likely to continue to be driven by diverging and idiosyncratic stories over the medium term.

In the US, key questions will be whether the economy can detach from external affairs – and whether increased consumer spending can translate into significant interest rate rises. Additionally, the strength of the dollar will be an important factor to consider. In Europe, the Central Bank’s policy intentions will remain front and centre, while in emerging markets, a further slowdown in China could have a tremendous impact on resource-based economies across the world. In Latin America, meanwhile, select economies are seeing some nascent signs of stabilisation even as inflation remains worryingly high.

Finally, the commodities story can be expected to remain a crucial factor governing global growth prospects in 2016, with the supply and demand dynamic for basic materials driving fundamentals across broad swathes of the currency, equity and fixed income markets. Will commodity producers have enough currency reserves and the right policy toolkit to survive ‘lower for longer’ commodity prices? And will commodity-consuming countries see a more sustained pick-up in confidence?

These questions, among others, will form a large part of our analysis over the coming year. Click here to access more outlook pieces for 2016.

Jason Lejonvarn – Mellon Capital, A BNY Mellon company

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