To say 2014 ended on a volatile note would be an understatement.What can we expect from UK and global markets over the course of 2015? We asked some of our top contributing analysts about what may lie ahead:
Sterling Outlook: Simon Smith, FXPro
We see sterling at 1.52 by the end of Q2, dipping below 1.50 in the second half, but probably ending the year around that level.
The risk to this view is more for a slightly firmer dollar, which would push cable below the 1.50 area towards the second half of the year. It’s not as clear that sterling will be able to outperform the single currency, which as we explained above, is not set to fall out of bed on the back of quantitative easing from the ECB.
And then there’s the small matter of an election in May 2015. The rise of the non-core parties (principally UKIP) means that it will be very hard for a single party to gain overall control of parliament. The result will be either another coalition or a single party pushing ahead with no overall control and the sluggish policy-backdrop that will entail. A dysfunctional political system has not undermined the dollar, but it remains a risk for sterling in 2015.
Bank of England Outlook: Vladimir Harman, World Business Press
The Bank of England’s dovish stance is expected to prevail towards the next general elections, due May 2015. Bearish sentiment, at least in lower pricing of energy and commodities, should keep inflation outlook broadly anchored and the BoE relaxed.
November Inflation Report pushed back expectations of the first hike in base interest rate further towards the autumn 2015. Apart from two hawkish dissenters, the latest messages from the November MPC meeting revealed there was a rift forming within the dovish majority led by Governor Mark Carney.
Some within this majority raised concerns about the current outlook for inflation, and said there were risks to this outlook looming on the upside. If those risks materialize, vote at the MPC could change dramatically during the next summer.
Based on what we know now from the latest growth and inflation forecasts, the BoE should start tightening policy in 2015, with at least one 25 basis point rate hike.
FTSE Outlook: Jasper Lawler, CMC Markets
For the FTSE 100, 7,000 will be a difficult nut to crack in 2015.
The UK economy is improving faster than most nations in the developed world but it is one of the most globalised economies and companies within the FTSE 100 have heavy international exposure. Global growth, notably in Europe and China is slowing and that will boomerang back into corporate profitability should it continue.
Mining and financial companies have the heaviest weighting in the FTSE 100; unfortunately commodities are in a bear market with gold, copper and oil at multi-year lows and banks are being crippled by intensified regulation after their role in the 2008 financial crisis.
The FTSE 100 has been banging its head against 6,900 since the taper tantrum in May 2013 signalled the end of US quantitative easing. It is for this reason that probably the only hope for the FTSE 100 breaching 6,950 and making new all-time highs is full sovereign QE from the European Central Bank or the People’s Bank of China.
Asset purchases by any central bank can benefit all global stock markets as risky-assets are favoured but QE from the ECB would boost Europe including the UK the most. Should central banks hold back on more QE, which given the legal issues in Europe and a brewing housing bubble in China seems the most likely scenario; the FTSE 100 could spend another year going nowhere trading in between 6,000-7,000.
Commodities Outlook: Richard Perry: Hantec Markets
Gold
I foresee an average price in 2015 of around $1200.
My outlook for gold is mixed for the coming year. I am confident that the dollar will continue to strengthen and this should be negative for gold. However the marginal cost of production is around $1050/$1100 and this should provide a floor in the price between $1100/$1200. This would mean that prices could have formed a low already (or are in the least in the process of bottoming). However, dollar strength should also keep any price rises in check.
I subsequently see a choppy year ahead for gold. My belief is that if gold can hold above $1200 by the end of February it would have started to break down the bearish technical outlook that has been in place since November 2012.
WTI Oil
I project WTI trading in 2015 between $65/$90, with an average price of around $75.
Oil prices are causing a huge debate as to where prices could move to. Technically the outlook for West Texas Intermediate remains incredibly bearish and there is a huge key resistance band now in place.
That would also be consistent with the lack of appetite on the part of OPEC to cut production levels. There are now too many conflicting parties for an agreement on supply restrictions to impact the price.
My view is that demand could pick up in 2015 as a natural re-balancing takes place with demand picking up due to the lower prices which are a de facto tax cut for oil consumer countries.
This should result in an ultimate stabilization of oil prices and we may have already seen the lows (or not far off).