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BUSINESS GUARDIAN guardian.co.tt JANUARY 5 • 2017
What's moved money,
oil and shares in 2016?
THE POUNDSterling's move this year has been
dominated by the impact of the
Against the dollar it is down
more than 15 per cent. Yes, there
have been other factors at play.
There always are many strands to what happens
to financial market process. But the currency
fell very sharply in the early hours of 24 June as
it became clear which way the vote had gone.
Why a weaker currency? It's partly about the
Bank of England and its policies. The Bank's
governor Mark Carney had signalled strong-
ly that he expected leaving the EU to lead to
weaker economic growth.
The markets took that as meaning that there
would be cuts in interest rates and perhaps a
resumption of the Bank's "quantitative eas-
ing" programme - buying financial assets with
newly created money. The Bank duly met the
market's expectation in August.
Lower interest rates mean lower returns
for investors in the currency where rates are
reduced so its value tends to fall. QE has the
same effect, partly because it also tends to
drive down interest rates across the economy.
The decline against the dollar also reflects
expectations about the US Central Bank mov-
ing in the opposite direction.
All year financial markets have been wonder-
ing when will the Federal Reserve raise interest
rates again - after last year's move, the first
since 2008 at the depths of the financial crisis.
The Fed did eventually take action in De-
The EU referendum has also created uncer-
tainty about the outlook for the British econo-
my, though the most pessimistic expectations
about the immediate aftermath of a no vote
have been proved wrong. The uncertainty
may also have contributed to the decline in
the value of sterling.
TOP 100 COMPANY SHARES
It has certainly helped the London stock
market that the British economy has contin-
ued to grow reasonably well this year. But the
fall in sterling was also an important factor
supporting shares. It does make it easier for
exporters to compete internationally.
For some, the biggest companies on the
market there is another advantage. Many of
them---miners and oil producers for example
---earn a lot of revenue in foreign currency es-
The fall in sterling means that is worth more
when converted into pounds, boosting both
the profits and share price of the companies
So, in 2016, there was a strong gain, 14 per
cent, in the FTSE 100 share index. The less
international 250 index - gained a more modest
three per cent.
The price of crude oil is now about double
the low it reached in January 2016. The market
has been driven to a large extent by the rather
laborious return to the stage of OPEC, group
that includes most of the leading oil exporters.
Often in the past a fall in the price of oil led to
an OPEC attempt to reverse the development
by agreeing to cut production - though it's an-
other question how effectively the member
countries would implement any such deal.
The fall that began in mid-2014 met no
immediate response. Saudi Arabia, OPEC's
biggest player, was thought to welcome the
pressure that falling prices put on shale oil
producers in the United States.
The Saudis also wanted a bigger contribu-
tion from other OPEC countries, notably Iran.
Eventually though, the response came.
In September the group agreed in principle
to act and then in November a new produc-
tion ceiling was agreed with some non-OPEC
members agreeing to take part.
The result: oil prices are still around half
the June 2014 level, but a lot healthier for oil
exporters than there were a few months ago.
GOLD, STILL GOLDEN?
The precious metal is ending the year with
a price rise of about nine per cent.
But it was a lot higher mid-year; more than
a third higher than at the start of 2016.
Earlier in the year, things in the US looked
rather different. Expectations of an interest
rate rise receded and some even wondered if
the Fed might join the European and Japanese
move towards negative rates.
The prospect that investors might have had
to pay to keep money on deposit made gold
look more attractive.
As the US economy gathered some strength
later in the year that concern receded and the
gold price turned down.
Far from going down, US rates were even-
Traditionally gold has been seen as an in-
vestment offering protection against inflation.
Since Donald Trump won the US Presidential
election markets have thought there might be
more inflation coming as he seeks to boost the
economy with tax cuts and perhaps spending
The gold price has moved up moderately
in the last couple of weeks, though if it was a
response to the election it was a delayed one.
In any event inflation in many developed
economies is gradually picking up a little from
very low levels.
So perhaps that suggests there is more room
for gold to gain too if some investors think they
want an anti-inflation hedge.
Massive political events have made 2016
a standout year; what impact have these had
on the pound, shares and the price of oil?
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