Top 2016 Events Driving Trading in 2017
From record stock market drops and historically low oil prices, to Brexit and the triumphant emergence of Donald Trump as the next leader of the free world, 2016 was full of surprises. 2017 promises new alliances: expect a remade EU, cooperation between OPEC and several other major oil producers, and a potential friendship between Russia and the United States. What were the biggest stories from 2016, and how will they set the tone for the year ahead?
Is Oil the Zombie Commodity?
2016’s fall and rebirth of the oil industry is likely to have the largest global impact for the upcoming year. Oil prices started the year below $30 per barrel, a plunge of over 60 percent from its high over more than $100 per barrel in 2014. The high prices of 2014 had encouraged American oil companies to use more costly production methods such as drilling in shale oil beds, threatening the dominance of countries like Saudi Arabia. The price drop was caused by a glut due to overproduction, as OPEC tried to drive its competitors out of the market.
However, once the prices began to drop below the cost of production even in Saudi Arabia, OPEC determined that this was an unsustainable policy. At the end of November of 2016, the member states agreed to drop production by more than 30 million barrels a day. Then in December, the agreement was extended to countries outside of OPEC, including Russia, Mexico, and Sudan. The signatories to the agreement currently provide more than half of oil for sale around the world. The market responded immediately with a price jump of more than 10 percent. Financial analysts are suggesting that barrel prices may even rebound to their former highs by the end of 2017. Aside from increased costs, the agreement will also signals and increased willingness for cooperation between the Middle East and Russia.
Britain Slams the Door Shut on Europe
The next major event from 2016 was the Brexit vote, in which the majority of British citizens voted to leave the European Union. Until the day of the vote, pundits claimed that the outcome would be pro-EU, due to the costs involved in Britain losing preferred trading status with the rest of Europe. However, the fear of increased taxes to bailout sister states such as Greece and Italy, alongside fears of terrorism by Islamic militants posing as refugees, convinced Brits to revert to isolationism.
Once the political fallout settled, Britain welcomed a new Prime Minister, Conservative Party MP Theresa May. May will need to face the difficult task of executing the referendum. In the last few months, this has already been challenged unsuccessfully a number of times. Many of the people who originally voted for the proposal now wonder whether May can negotiate favorable trade agreements. Additionally, Brits question whether to continue with the EU as allies. Some prefer a closer relationship with the United States, as it also leans to the right.
Trump Win Is a Symptom of a Global Drift to the Right
Finally, in the year’s biggest upset, Donald Trump beat out Hillary Clinton in the American Presidential election. Going into the Election Day, polls showed Clinton with a comfortable lead. Therefore it was even more surprising as several blue collar states eventually swung to Trump, especially Michigan, Wisconsin, and Pennsylvania. This was the culmination of several years of declining liberal influence in the country. Now the Democratic Party has been reduced to a regional party representing California and New York. Republicans also have control of the House and the Senate, and they are completely in charge of 25 state governments, compared to only 5 states for the Democrats.
Other countries are also becoming more conservative. Elections in France, the Netherlands, and Germany are coming up in 2017. In each of these contests, the front runners are arguing for a British style referendum to leave the EU. After nearly a decade of a global recession, citizens of the world’s most prosperous nations are turning inward in. Many citizens are desperate to maintain their way of life.
How Will Events from 2016 Affect Trading?
Oil prices will continue to go up for the next several months. This is a good time to place mid and long term “call” orders. Those countries which rely on this commodity for economic success should see better times in 2017. The Middle East and Russia will prosper at the expense of Europe and the euro. Given the likelihood that the United States will join this new coalition, the dollar should increase as well.
Britain will formalize its withdrawal from the EU this year. If Prime Minister May chooses her new partners wisely, the pound’s value will improve. The island nation wishes to regain its influence in world affairs, while protecting its borders from militants. Meanwhile, Brits should still see lots of employment options on the coast due to their high levels of education.
Trump will remain a wildcard on the global scene. However, he has become more moderated in tone since his confirmation as President-Elect. The markets have already rallied in support of his administration. Based on his choices for Secretary of State and Secretary of Commerce, look to Trump to turn his back on the EU and support Vladimir Putin as the new kingmaker in that region. Trump may be on the verge of starting a trade war with China, but if he can open new markets in the Middle East, this may be sustainable in the short term. All signs point to a strong dollar through the rest of the year.