Everyone loves a forecast, a prediction, even a few ideas on what the future holds, and we become particularly obsessed with such ideas at the start of a new year.
So, we thought it would be fun to review a few sources’ suggestions on what 2018 may hold, some as specific predictions like those in the Financial Times, and some as possible standout black swan events that could catch us off guard, such as those in The Telegraph newspaper.
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Firstly, some of the Financial Times’s suggestions. They came up with 20 of them, but many are political and somewhat niche for our readership, like whether or not Britain’s Prime Minister Theresa May still be in power by the end of 2018. It’s a topic only the Brits are obsessed with and as it’s not exactly going to roil international markets one way or the other, we will ignore it here, as will non metal-market issues, like whether the AT&T-Time Warner merger will go through without big changes to both.
However, of more interest are questions like “Will Trump trigger a trade war with China?” Yes, in the FT’s opinion. The paper believes Trump will deliver on his protectionist campaign rhetoric and take punitive actions against China in 2018, resulting in China either imposing retaliatory measures or taking America to the World Trade Organization (WTO). (While on the Trump train of thought, another ditty from the FT is “Will the president will be impeached in 2018?” — or, at least, whether or not proceedings will be brought against him by the end of the year.)
Back to China, the driver for metal markets will be Chinese demand and Chinese GDP growth. At least officially, growth will continue to headline at 6.5% throughout 2018, the FT believes, although it clearly does not believe the official figures and makes the point real growth will be somewhat lower. Emerging market growth overall is expected to rise above 5% through 2018 despite the U.S. Federal Reserve increasing rates, which could spark taper tantrum spoilers (as in 2013). Even so, emerging market growth is expected to remain robust, aided by ongoing strong growth in the U.S. and Europe.
Political Turmoil Shakes Things Up Worldwide
Politically, 2018 could be an interesting year.
French President Emmanuel Macron is not expected to pull off an agreement with German Chancellor Angela Merkel for a Eurozone budget plan to absorb economic shocks, overseen by an E.U. finance minister. Merkel has been politically weakened by her poor election showing last year and will be more sensitive to internal opinion than during her previous periods in office. The German public is not enthusiastic for any plans that could see them footing the bill for what they see as the consequences of spendthrift E.U. states’ behaviour.
On the other side of the pond, in the U.S. the Democrats are expected by the FT to take back the majority in the midterm elections in the House of Representatives … by a whisker. The math may not be with them, the FT notes, but history is; presidents usually lose some support midterm and this one is more contentious than most.
The 10-year U.S. treasury yield, however, is not expected to reach 3% this year. Although supported by the removal of quantitative easing and the inflationary effect of the U.S. tax cuts, the FT believes the long-term downward pressures on inflation and bond yields will cap treasury yields despite three Fed rate rises expected in 2018.
Further afield, no real changes are expected in Zimbabwe following the removal of the dictator Robert Mugabe and his replacement by the Army with his No. 2, Emmerson Mnangagwa last year. It will be business as usual in 2018; the promised free and fair elections will be anything but. On the plus side for metals markets, there is less prospect of political disruption to the platinum and palladium prices, as Zimbabwe is a major producer (along with South Africa and Russia).
Oil, Gold Up; Bitcoin Down
More widely, will oil finish 2018 above $70 a barrel? Yes, the FT believes, providing Russia continues to play ball and support Saudi Arabia’s output cuts, at least on paper. Gold, too, is expected to benefit in 2018. After years of being flat on its back, gold could benefit from a predicted bitcoin bubble collapse, which is expected to see a flood of safe-haven money flow into gold sometime later this year.
On that point, we can briefly review The Telegraph’s predictions, because on that one point alone the papers agree. The Telegraph also foresees a bitcoin collapse and observes the smart money may already be moving out of the cryptocurrency. Whether we will see gold at $2,000/ounce again as in 2011 is unlikely, but some upside would certainly result.
Poland, Political Correctness and More
Political turmoil in Europe is again on the agenda, as it is every year, but this time it is not Greece — or even Italy, as it has been the last 18 months — but now Poland.
Realistically, the chances of Poland leaving the E.U., from which it benefits immensely, are very slim. However, the escalating war of words between Brussels and Warsaw over the Polish Law and Justice Party’s meddling in the justice system of centralization of legal power in political hands could, just conceivably, lead to Poland leaving the EU and join the European Economic Area (EEA) (along with Switzerland, Norway and maybe eventually Britain) maintaining free market access but avoiding much of Brussels’ interference in its politics.
One of the paper’s final suggestions is we could see a backlash against political correctness. As an example, the article cites Austria as the first country in two decades to reverse its smoking ban under its right-wing collation. The article suggests Donald Trump would love to rip up some health legislation and points to Canada planning to legalize marijuana, while many U.S. states have already done so. I am not sure it would be a great idea if this became a global trend, but personally I would love to see the rollback of the nanny state in many areas. It could also be rather good for “sin” companies in sectors such as tobacco and alcohol, The Telegraph mischievously suggests.
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We wish all our readers and those sponsors that have supported us so well over the last year a very successful and prosperous 2018.