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In the financial markets, the year 2015 has been a very interesting year. The dollar, in the currencies, dominated the financial markets. The dollar strengthened amongst the major currencies. The dollar, for example, gained against the Euro by 12 percent, against the pound by 15 percent, and against the Australian dollar by 20 percent. The Dow lost 2.65 percent, the NASDAQ gained 5.76 percent and the S&P 500 fell by 1 percent. The Russell index that tracks small caps stocks fell by 4.15 percent. The rout has been huge in the commodities market. Crude oil fell by 30 percent, gold by 15 percent, and silver by 12 percent. The Bloomberg Commodities Index had the worst year since the finance crisis.

The losing streak around the world has been an important theme with 3 factors that play a key role. They’re: the Federal Reserve decision, slowing Chinese economy, and uncertainties in the Eurozone.

The Euronext index had a positive year and gained 11.47 percent, the DAX gained 9.86 percent, AEX gained by 4.63 percent, the SMI lost by 3.09 percent, the Nikkei lost by 7 percent, whereas the Shanghai composite index shed 10.3 percent. The five year note, in the bond market, returned 3.93 percent, the ten year returned 3.36, and the thirty year returned 7.87 percent. In this post, I’ll look at the key factors which will likely shape the year 2016.

Security uncertainties

The year 2015 saw the continual rise of ISIS. There were attacks inside France and the U.S. increased their global alertness to crime that was perpetuated by this terror group. It has been further fueled by the crisis inside Yemen and Syria. War, in Syria, has continually risen with 3 primary functions. One is led by the government in Syria, the other one by the current regime’s opposition, and the additional one by ISIS. The community around the globe is united by noting that ISIS includes the primary enemy. But, the challenge is on how to handle it as Russia is supporting the Assad-led government. The Assad led faction, a few weeks ago, accepted calls by the Western powers to negotiate talks. Depending upon how those issues continue on, the financial market is going to absolutely react.

Rate increases

Finally, the Federal Reserve made a decision to pull the plug within its December meeting. The committee rose by 25 points as expected. The market’s reaction to this news wasn’t extrapolated as was experienced one week before by the announcement from Mario Draghi to decrease interest rates rather than continuing quantitative easing. Within 2016, investors are going to keep watch on the economic information which will be released. The details will decide the rate of rate increases within the year. The majority of experts think there’ll be 3 to 4 rate hikes within the year.

China

China, in 2015, was an important driver of global finance. China, which has had massive growth within the past now is experiencing slow growth. Also, in 2015, China devalued its currency. Participants within the financial market are going to have China in their radar. All economic or fiscal data which is going to be released likely will drive the markets lower or higher.

Crude oil

It’s the most used commodity on the earth. In 2015, the prices fell by over 50 percent. The spiraling effect of this situation has been massive with gas and oil companies falling. Gas prices worldwide, at the same time, have fallen. The primary gainers to the loss was airline stocks that have benefited by paying less money in fuel. In the year 2016, the financial community is going to have a close interest to the prices of crude oil and whether they are going to recover or not.

Commodity Prices

While the year 2015 was a relatively poor year for commodities, I think 2016 is going to be worse. As such, I think the commodity prices are going to bottom out in 2016. It’ll be due to numerous factors. One, the solid dollar definitely will lead to commodities like oil to become expensive. It’ll lead to decreased demand. Oil supplies worldwide, at the moment, are increasing. Thereby, with a weak demand and increasing supply, the result is going to be lower prices. Keep in mind that recently, the United States removed the forty year ban on oil exporting and Iran is expected to start exporting its oil early in 2016. Recently, Goldman Sachs released a statement in which they anticipated oil prices might go as low as twenty dollars per barrel. Continuous decline in commodity prices are going to have severe implications to a variety of economies. For example, Australia is an important commodity exporter. If commodity prices decline, there’ll be trade imbalance that is going to have severe implications to its economy.

 

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