Kim Rupert, managing director and global fixed income analyst for Action Economics, anticipates a bumpy road ahead for markets, writing Monday that the surprise victories of Donald Trump and Brexit are manifestations of the dynamic changes taking place around the world. They are also reflections of the rise in political risks that should have significant consequences for growth in 2017 and beyond, wrote Rupert. Meanwhile, the recent decisions by the Federal Open Market Committee to tighten policy and the European Central Bank to extend stimulus reflect the widening divergences of monetary policy. And the uncertainties over the macroeconomic outcomes from government and central bank actions, along with geopolitical tensions, will keep the markets choppy ahead.
Rupert notes that equities extended higher, though at a more moderate clip than the near vertical ascent seen on the month. The Dow was the laggard of core markets, up a mere 0.4% over the five days, encumbered by record high levels, the hawkish FOMC result, and Friday’s news that China has seized a U.S. underwater Navy drone in international waters (since returned to the U.S.). Nevertheless, it was a 6th straight weekly increase, the longest of the year. Japan’s Nikkei registered the strongest uptick on the month, up nearly 8% thanks to the drop in the yen. The DAX managed a 6.9% jump, followed by the Dow’s 5.2% gain. The FTSE 100’s 3.9% increase was the slowest of the group. Concurrently, the dollar’s rally remained impressive, with the index at a near 14-year high.