A slower growing China, diverging central bank actions and a cutthroat battle among global energy producers were themes that impacted markets in 2015, and those themes should continue to influence trading around the globe in 2016. Here's a look at five charts that sum up 2015.
Global investors were transfixed by the volatility in the Chinese stock market. At one point, the Shanghai composite was up more than 50 percent for 2015. But further evidence of China's economic slowdown, central bank intervention, corruption concerns and a surprise devaluation of its currency in August sent stocks on the blue chip heavy benchmark into a free fall. The Shanghai composite still managed to close the year up 10 percent, well off its highs. But it tallies up as one of the best gainers among the emerging markets this year, despite its crash. In 2016, investors will keep a close eye on China and whether its central bank's monetary and fiscal policies are starting to lift the real economy.
A combination of a major supply glut and stronger dollar sent oil prices skidding in 2015. This downward spiral was worsened when OPEC signaled that it has no intention to cut production or change its year-old market-based pricing policy. Brent prices briefly fell below $36 per barrel. In 2015, the price of oil is down 35 percent. Over the past two years? It's down 68 percent. Ouch.
US 10-year note
Will they or won't they? Treasury yields were up, down and all around amid confusion over whether the Federal Reserve would hike rates. Hike they finally did in December, and that has driven a "flattening" trade, where long-end yields rise slower than the shorter-duration yields, like the two year. Strategists say the 10 year was also sensitive to oil prices, stock market volatility and concerns about whether the economy was strong enough to withstand Fed rate increases. The yield curve flattened more after the Fed raised interest rates by one quarter of a point – the first rate rise in nearly a decade. Larry McDonald, head of U.S. macro strategy at Societe Generale, says a credit "risk-off" event will likely drive the U.S. 10-year yield below 2 percent in the first half of 2016. Yield on the 10-year Treasury note is currently hovering around 2.26 percent, and another factor that could keep it low is the attractiveness of U.S. yields versus other sovereigns.
The launch of the European Central Bank's bond-buying program earlier this year, coupled with strong dovish rhetoric from its president, Mario Draghi, sent the euro zone currency down 10 percent in 2015, hitting a multiyear low against the dollar. The weaker currency benefited European multinationals that rely heavily on sales overseas, helping both earnings and their stock prices. With monetary divergence fully in effect, (the Fed tightening and ECB easing), analysts were calling for the euro to trade at parity with the U.S. dollar. However Draghi disappointed investors in the latest monetary policy meeting with his "QE2" program. Expectations were high that Draghi would send the currency lower, and some firms like Goldman Sachs offered proclamations that the currency would soon reach parity but the wild reversal after Draghi's comments was one of the biggest short squeezes of the year. Macquarie Capital and others are still expecting the euro to trade at parity with the dollar sometime in 2016. Macquarie's Thierry Wizman tells CNBC, "The ECB will still remain among the most aggressive producers of liquidity among the world's central banks in 2016 and even into 2017, while other central banks have already hinted that their era of easy money is winding down, or, in the case of the Fed, is being reversed."
It was a record-breaking year for dealmaking thanks to low rates, tax incentives and a willingness among international companies to put their money to work. According to Dealogic, nearly $5 trillion worth of deals was announced in 2015 led by health care, technology and real estate. Asia-Pacific-targeted M&A broke the $1 trillion mark in 2015 for the first time ever, and made up nearly 25 percent of global dealmaking this year. Some of the big deals included: Pfizer's proposed acquisition of Allergan for $160 billion, AB InBev's $117 billion deal with SABMiller, (the largest spirits/beverage deal on record) and Dell's plan to purchase of EMC for nearly $66 billion, the biggest technology deal on record.