2015 has been a trying year for the global financial markets, and we still have one full quarter to go. Concerns about global economic growth, financial market volatility and plunging commodity prices have put investors in a very precarious position. In the following article we give a rundown of five shocking developments in the global markets so far this year. Granted, this list could have been much longer, but our goal isn’t to depress our readers. Take a look at the top-five list and see if you agree with our selection.
Swiss National Bank removes peg on euro
On January 15 the Swiss National Bank unexpectedly removed the floor from the EURCHF, allowing the Swiss franc to fluctuate freely against the euro. And fluctuate it did. The Swiss franc gained as much as 30% against the euro in intraday trade, kicking off a chain of events that would engulf other currencies and global stock markets. The SNB, which had introduced the fixed rate in 2011 to curb against market turmoil, said the move to de-peg the EURCHF was a “well thought-out decision.” Clearly the market felt otherwise. The move was so shocking that it put several forex brokerages out of business.
“Currency brokers fall over like dominoes,” wrote Tim Worstall of Forbes on January 16. Major brokerages like Alpari (UK), IG Group PLC (UK), Excel Markets (NZ) and Swissquote Group Holdings SA (SWZ) were just some of the major firms to be affected.
Slowing demand in China, record US shale production and peak OPEC output have resulted in one of the biggest oil devaluations in recent memory. The extent of the oil price collapse has taken the global market by surprise. What’s even more concerning is what it tells us about the global economic climate. Oil prices are down around 50% year-to-date. Prices aren’t expected to rebound any time soon, according to a broad consensus of market analysts and major banks, who believe oil prices will remain lower for much longer. Most major forecasts have pegged global crude prices at below $60 a barrel through 2016. According to some analysts, $60 is the new $100 in a market that is oversupplied.
Greek bailout deal
Many analysts placed the chance of a Greek default at around 50%, so not everyone was surprised by the news of an 11th hour deal on July 13. What did shock the markets were the terms of the agreement. After six months of defiance, Greek Prime Minister Alexis Tsipras capitulated to the demands of the troika by accepting a deal that very few Greeks thought was possible. The deal promised Greece €86 billion in financial aid in exchange for tough economic and financial reforms, including raising the country’s value-added tax, reducing collective bargaining rights and selling €50 billion worth of state assets.
The agreement was so controversial that it split the ruling Syriza party, resulting in the resignation of Tsipras about a month later. Tsipras and his Syriza colleagues would later regain control of the Hellenic Parliament in a September 20 election victory.
Iran Nuclear Deal
Some say it was a victory for diplomacy. Others believe it was a move in the wrong direction. Whatever you want to call it, the Iranian nuclear accord was a big deal. The agreement, which was struck in July between Iran and six world powers, put limits on Tehran’s uranium enrichment program. In exchange, Tehran received assurance that key economic sanctions imposed by the United States and European Union would be lifted.
Iran, which exported an average of 1.4 million barrels of oil per day in 2014, is expected to boost production levels by up to a million barrels per day in the short-term. This will play into the global supply glut should OPEC keep its production levels upwards of 30 million barrels a day. However, this may not be necessary, as it appears that US producers are slowly scaling back production, according to the US Energy Information Administration (EIA).
About $5 trillion worth of market cap has been erased from global equities since June, around the time China’s stock market began to crash. The events came to a head on August 24, a day infamously known as “Black Monday.” The Chinese markets sold-off like wildfire, resulting in the biggest market crash since the 2009 financial crisis. The selloff spread west, engulfing Europe and Wall Street. China’s benchmark Shanghai Composite Index fell 8.5% in one day and is down a staggering 40% since mid-June.
The events that led to Black Monday deserve a top-five list of their own. Concerned about a broader economic slowdown, the People’s Bank of China in August devalued its currency, the yuan, for the first time in two decades. Fears broke out immediately about a currency war between China and the West. Although this has yet to materialize, the PBOC may be forced to take additional measures to boost the struggling Chinese economy.
You know 2015 has been an awful year when the Volkswagen emissions scandal (a.k.a. “Dieselgate”) was left off the list. Let’s not forget the VIX Volatility Index, which has spent nearly a month hovering around recession levels. China offloading more than $100 billion in US Treasuries has a lot of people talking. The European Central Bank’s quantitative easing program is also worthy of elaboration, not to mention Japan’s economic contraction in the second quarter. Oh, and more than a dozen central banks have eased monetary policy this year.
I think that covers it, for now.
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