“Imagine the Unimaginables” is an annual attempt to identify what the capital markets are expecting in the months to come and therefore have efficiently discounted. It is an act of trying to identify consensus. This was originally published on December 1, 2016 and speculates what might happen in 2017 and is not yet discounted.
1. V-shaped recovery finally in Europe AND US
Not really a V yet (see link above for charts), but still continued recovery with hints that Europe could overtake the USA causing speculation that the ECB will taper rather sooner than later–how will they keep the Euro from rising too much? Some experts say we are about to enter the 2nd half of the recovery where growth tends to be far more robust after a financial crisis compared to the first half. By increasing rates, the FED and the ECB may be simply trying to stay ahead of the curve…
2. Currency wars are replaced by competitive lower taxes
Lower taxes exp. in Europe tend to be unimaginable, but it may be the competitive solution when the Euro keeps on rising. It may also be necessary if the US pulls off the promised corporate tax reform–decreases.
3. Europe learns to sell itself perhaps convincing Britain to stay in after all
This remains unimaginable but not because Europe isn’t trying. The UK seems determine to carry on even with all the implied disadvantages. The Euro strength and relative robust European growth has to make the British wonder, although Britain has proven to be robust as well ’til now esp. with a most competitive currency.
4. Oil prices approach $35!
Somehow this one gets more and more imaginable, mostly due to the disruption causesd by natural gas plus renewable energy sources. Commodity prices remain strong, which some think should support oil, but oil bulls will have to get used to the idea that supply still outstrips demand and should continue.
5. Trump goes green (jobs!?!)
This one remains a stretch, although he did mention once the idea of building his wall with solar panels! This headline should rather read, the USA gets greener despite pulling out of the Paris Accord.
6. Trump pulls out of the Mid-East altogether
Again, another stretch although he wants to be the President that brings peace to the Middle East. The White House has announced an increase of troops for Afghanistan so, this one remains unimaginable.
7. Populists on the retreat (lose European elections)
Somehow back in December, this seemed so obvious, but not to consensus with underlying fears in the markets remaining until the outcome proved that too much change as being witnessed in the USA and Britain can be disconcerting. Germany is preparing for her September 24th elections where we expect the status quo, but there are some that fear disruption from the left with a Red Red Green victory (like Berlin last September) or from the right wing with growing influence from the AfD. Few seem to speculate that Germany may actually have a stunning success from the liberals, FDP. This would imply Germany moves a bit to the right!
8. Europe stock markets outperform USA
They are neck n’ neck… For the US Dollar based investor, Europe has been quite rewarding this year…
9. Putin loses his job
Putin has been busy courting the Chinese as his “alliance” with Trump falters. Both Syria and the Ukraine news flow has gone too quiet and now there are fears of a Russian troop build up close to the Baltic countries, Estonia, Latvia and Lithuania, all EU and NATO members. Menacing… but it may help Putin remain in power, although weaker oil prices don’t help the domestic economic situation.
10. China goes Isolationist
With Trump threatening a trade war between China and the USA, China might do the unimaginable and just cut off trading relations with America and continue building new ones with others (the Silk Road project). Still becoming isolationist remains unimaginable…