For most commodities, 2017 was a good year with energy and metal markets rallying. Turning to 2018, we think base metals should remain well supported but expect the energy complex to weaken
OPEC has done a much better than expected job in complying with their production cut deal. This stronger compliance, along with growing geopolitical concerns has proved bullish for prices. Now with OPEC set to extend the deal through to the end of 2018, some would think that the recent supportive environment is set to remain. However, we don't think so.
Non-OPEC supply is set to exceed demand growth over 2018, which will see the global markets in surplus. This also assumes OPEC stick to their cuts. The risk is that the longer the deal continues, the more likely we see some producers falling short of their commitments, which would only push the oil market further into surplus.
The Swiss National Bank will have to wait until late 2019 before the current activity rebound brings inflation back
The Swiss economy has not exactly stood on its own two feet since 2015: the strong appreciation of the CHF following the end of the monetary floor under the EUR/CHF depressed trade while domestic demand was still strong.
2017 was the weakest year since 2012, but we expect GDP growth to reach 1.8% in 2018. Both dynamic exports based on a weaker CHF and higher domestic demand should contribute to the rebound.
In 2016, the latter was depressed by the lower activity induced by the former. At mid-2017 both legs ended up weak, which explains why 2017 growth is not expected much above 1%, the weakest pace of expansion in the economy since 2012. This should change in 2018 as most indicators point to a rebound at the turn of the year. With the economy back on its two feet again, growth should reach 1.8% in 2018 and 2% in 2019.
The announcement of 'sufficient progress' removes a big layer of uncertainty for markets and the UK economy, but there are still a number of big questions looming in 2018
After months of deadlock, the EU and UK have finally reached a deal which allows the European Council to declare 'sufficient progress' to move onto trade talks. The UK has reportedly agreed to meet all of the financial commitments set out by the EU earlier this year. They have also accepted that the European Court of Justice will have a role to play in policing citizens rights, formally a big red line for the UK government.
But the big sticking point was the Irish border. The wording agreed earlier in the week, which committed to "no regulatory divergence" on the island of Ireland, raised fears within the Democratic Unionist Party (DUP) that this could weaken Northern Ireland's access to the UK internal market. But a series of additional commitments - including one that guarantees "unfettered access" for Northern Ireland to the overall UK market - appears to have reassured the DUP.
Now these 'divorce issues' are resolved, here are the seven things we'll be focusing on in 2018.
The Eurozone was the global economy’s Cinderella story of 2017. The question now: Was this a one-off performance or can it can maintain the pace? We think the latter
Will the Eurozone be 2015 Leicester City or will it be Chelsea with continued strong performance thanks in part to a generous supply of money? We think the latter and we could even see a further acceleration of growth from here.
About a year ago, sentiment about the Eurozone was downbeat. People were still reeling from the UK decision to leave the EU and the US Presidential elections caused a lack of trust in political polling. This led to EU disintegration risk to top the list of investor worries with many Eurozone elections ahead.
We expect growth at 2.2% in 2018, well above trend
About a year later, things look very different. Europe’s most boring election, in Germany, actually seems to have resulted in the largest uncertainty of all. Most governments formed have either maintained previous positions on Europe or become more euro-minded.
With so much focus on politics, acceleration of economic indicators went almost unnoticed at first. But a strengthening job market, weak inflation, exports profiting from improving global growth and decade highs for consumer confidence are causing the Eurozone economy to accelerate. This year, we expect GDP growth to come in at 2.3%, which would be a tie for strongest growth in a decade. There are few signs pointing to a slow start of 2018 either. We, therefore, expect growth at 2.2% in 2018, well above trend.
As part of our 2018 FX outlook, 'Happy Hour', here's a guide to where we think major currency pairs could be heading
Optimism reigns! In contrast to fears at the start of the year, policy uncertainty has actually fallen. This and signs of co-ordinated growth have sent consumer and business confidence to post-Global Financial Crisis highs. Pro-growth FX is starting to perform well. We are less worried than some by the removal of central bank liquidity. Instead, we believe the conversion of business confidence into stronger investment will be the key story for FX markets in 2018. European and Asian FX score highly here.
But this ‘Happy Hour’ by definition cannot be extended indefinitely. Stiffer headwinds may emerge towards the end of 2018 and greater weight may be given to FX backed by external surpluses. We believe the dollar softens under most scenarios.
Below see our summary of major currency pairs. And take a look at our overall FX thoughts here:
Trade in 2018 will pick up speed but rebalancing of the Chinese economy and global value chain trends mean we won’t see world trade growth doubling GDP growth, as it did before the crisis
With fourth-quarter trade data still to come, we expect 2017 to be the strongest year for world trade since 2011. With an annual growth of roughly 4.5%, world trade will outpace world GDP growth for the first time in six years.
A round-up of what our economists and strategists are looking out for in the year ahead