Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Categorized | Currencies

Nomura rounds up markets’ biggest misses in 2016

Posted on November 30, 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016.

The biggest miss among analysts, according to Nomura’s Sam Bonney, was overestimating US growth and inflation prospects. The consensus in January was for economic growth of 2.5 per cent and average inflation of 1.8 per cent, in contrast with actual growth of around 1.5 per cent and inflation at 1.3 per cent.

The Fed was expected to raise interest rates three times by the end of the year, while we’re still waiting for a first bump up of the year next month.

That caution was encouraged in part by the most obvious failure on the part of markets this year: as Nomura delicately put it, “political events didn’t unfold in the way analysts thought”. June’s Brexit vote and Donald Trump’s presidential election victory both shook markets, with the pound and Mexican peso respectively 17 and 24 per cent weaker than forecast at the start of the year.

On the flip side, China “didn’t implode”, and Brazil was more stable than expected. Investors’ forecasts for smaller G10 economies were also off, with Australia, New Zealand and Sweden performing better than expected (except Sweden’s currency) and Norway and Canada both disappointing.

After all those misses, Nomura considered a 20 per cent revision to oil price forecasts relatively successful. Brent crude has remained close to the $46 forecast at the end of February, if not the $57 expected at the start of the year.

An accurate dollar forecast also comes with a caveat: while predictions were “almost spot on”, it wasn’t necessarily for the right reasons, driven by the weakness of sterling and a late post-Trump surge (which, as discussed, investors weren’t entirely expecting).

If, after that, you still have any faith in the market’s forecasts (or just want to know what to avoid), Nomura says the current consensus for next year sees faster growth in the US, weakness in emerging markets and outperformance from the Scandinavian currencies. Most ominously, they also appear to think major political risks are “behind us”. Luckily there are no major political events coming up…