The events to shape markets in 2017

After a pretty rambunctious 2016, this year is shaping up to be yet another highly volatile 12 months which will help shape the world we know it for years to come. Here is a list of some key economic and political events to watch out for in 2017.

January 20: Donald Trump inauguration

Donald Trump’s presidency promises to be one to remember, with the president-elect proving to greatly influence financial markets on an almost daily basis. There is a theory the first year for a president typically does little to impact growth, yet this time around it looks like it will be an ‘act now, think later’ presidency. The inauguration is unlikely to bring particular volatility, yet it allows for changes to happen, which are likely to be significant for business if Trump’s Twitter activity is anything to go by.

Among other things, Donald Trump has promised to swiftly pull the plug on the Trans-Pacific Partnership, Obamacare and the current clean energy policy.

March: UK to invoke Article 50

The UK looks almost certain to leave the EU, with the enactment of Article 50 forming a major part of the process. While traders know Article 50 is highly likely to be implemented, it is the impact upon business decisions that really makes this a significant event. The decision to activate would lead to the commencement of negotiations over what the UK-EU trading relationship might look like. Remember the outcome of these negotiations will have huge consequences, impacting the future of jobs, growth, investment, Scottish membership of the UK and a whole lot more. Given the potential for capital flights as associated with firms moving operations abroad, there is going to be significant volatility for the pound in the period leading up to this announcement.   

March: Dutch election

What was a fairly marginal political party has risen to prominence thanks largely to the refugee crisis in recent years, with the Eurosceptic PVV party threatening to bring a ‘Nexit’ to the Netherlands. Holland’s answer to Nigel Farage, Geert Wilders, is leading the party from strength to strength on a promise to bring another EU referendum, which could see a second country leave the economic block.

Should the Dutch vote to leave the EU, it could mark the beginning of a Eurosceptic coalition of nations who could jointly negotiate their new relationship with the EU. Alongside the French elections, this is going to be one of the most important political events of 2017.

April 23: French election

The French election marks one of the most worrying events of 2017 for pro-Europeans, with the very real threat of Marine Le Pen casting a substantial shadow over the EU. Notoriously Eurosceptic, the right-wing National Front’s chances of gaining the presidency may be slim, yet so was the chance of Brexit or a Trump victory.

While Ms Le Pen may win the initial round of voting, her divisive policies mean that any run-off could see her pushed into second place with moderate voters rallying against her in favour of François Fillon from the conservative Republicans.

That being said, no one seemed to believe Donald Trump would win, let alone with a full Republican Senate. If 2016 taught us anything, it is to undermine the disillusioned and disenfranchised at your peril. Should Le Pen take the presidency, this would likely overtake Brexit as the biggest threat to the EU.

June 15: FOMC meeting

This is the first meeting of 2017 with expectation of a rate rise. Bear in mind that this does not mean we will actually see anything from the committee. Nor can we say with certainty that we will not have had a rate rise already by this point, which will be dependent upon Trump’s fiscal spending and the state of US inflation in H1. Ultimately, with such wide speculation of a rate rise in September, there is likely to be dollar strength in the period leading up to the meeting.

August to October: Germany election

Angela Merkel has had a tough ride recently, with many of her policies coming under intense scrutiny. This German election sees Merkel seek her fourth term as the German chancellor, yet it is not going to be an easy path.

Of course the main battleground seems to be immigration, as highlighted by her new stance on integration and covering up. However, the markets will care about the potential for the far-right AfD party to gain ground amid a weakening of Merkel’s coalition partner, the Social Democrats. Should the AfD secure seats in the Bundestag, as is expected, this could undermine Merkel’s effectiveness, throwing a spanner in the works for issues such as EU subsidies to Italy and Greece.

September 21: FOMC meeting

The Federal Reserve’s second rate hike is currently scheduled for September, should everything play out as expected. As seen in 2016, things typically do not go to plan and as such, this meeting may have little significance by the time it comes around. Last year had four rate hikes originally scheduled in and we all know how that turned out.

December 14: FOMC meeting

After two consecutive December meetings, will the Fed make it a hat-trick? This point in the year should have many of the European political and US fiscal uncertainties resolved, leaving the Fed to make its decisions in a much more even handed manner. High inflation is one of the core drivers of rate hikes in the US and should we see a large bout of fiscal spending, we could easily see inflation overshoot targets, bringing further pressure on the Fed.

TBC: Italian election

More of an uncertain event is whether we could see an Italian general election at some point in H1. With Matteo Renzi stepping down following his referendum loss on electoral reform in December, the country remains in a state of flux.

While the president Sergio Mattarella wants new electoral law to be drafted prior to any election, there are wide ranging calls to undertake an election in the first half of 2017.

According to current polls, any election held in the near future would lead to the Five Star Movement winning control of the Chamber of Deputies (lower house of parliament). Whether it would be able to gain full control would be down to its willingness to form a coalition, which would likely be highly unstable in any case. Given its stance towards the euro, coupled with the unpredictable nature of these recent elections and referendums, it is likely that such an election would cause significant disruption for financial markets.