This time of year you often get called upon to write or contribute to pieces for newspapers or magazines reflecting on the investment out-turn for 2017. Papers tend to use these in those slack days between Christmas and New Year.
It looks like 2017 was in fact a great year for stocks but maybe just an OK year for investment returns. The difference lies in what currencies did – specifically for Euro-based investors and specifically in relation to the US dollar.
Simply put the US dollar weakened relative to our own Euro currency and this took a lot of the gloss off returns from US assets for investors here. At time of writing, the gap is about 12/13%. This wouldn’t have been in many forecasts at the start of the year. What drove this is that the Eurozone economy was better than expectations and at the same time in the US, the Federal Reserve (Central Bank) didn’t move rates up at the pace that was assumed.
So currency mattered a lot in the investment return outcome, but really they always do – they’re just tricky to forecast. Even pure currency funds and fund managers can struggle to navigate a successful course in global currency markets, and will often blame a lack of volatility, or too much volatility or the wrong type of volatility…
So where do we stand today?
Well I think interest rates are very important, and in the US we are likely to see 3 or maybe 4 increases all going well. Eurozone interest rates aren’t moving. This should be supportive of the US dollar but maybe the moves won’t be all that dramatic.
So the fact that the “money’s too tight to mention” or at least getting a wee bit tighter may mean a higher US dollar in 2018.
Either way you’ve got to love a song that can get “Reaganomics” into the lyrics.
Tradewinds 