It is the end of the year, and therefore time to review the performance of various markets that we trade.
Energies
Oil as well as other energy products are among 2016’s top market performers. After these markets fell to lows the previous winter, they have all made tremendous gains this year. Helped by dramatic cutbacks in exploration, unpredictable weather, the retirement of many coal mines, and a resolve by OPEC to boost prices, the energies surprised many this year.
Grains
After three straight years of bumper crops in the United States and around the world, 2016 featured most of the same with record yields in corn and soybeans. Aside from individual market rallies like we had with soybeans in the spring, the grain market was uninspiring at best to downright depressing.
Sugar
The rally in sugar made it one of the best performing commodities of all, from the second half of 2015 through the first nine months of 2016. For the second straight year, there was a production deficit. Demand has exceeded supplies. The sharp decline of prices in the latter part of the year reflects the expectations of increased production down the road. The strong dollar has certainly put a damper on prices too.
Treasuries
The 10-year U.S. Treasury notes are about even for the year but don’t be fooled. They have lost about 5 percent since Donald Trump’s election and last week’s quarter-point rise in U.S. interest rates. Though normally U.S. Treasury notes are pretty sedate, the absurdity of negative interest rates, together with the unpredictable string of news events this year, have made Treasuries, particularly the 30-year bonds, among the craziest, most volatile markets this year.
Copper
While the prices of most base metals rallied throughout 2016, copper was a laggard. The red metal hit rock bottom when it dipped below $2.00 in January. Since that low, copper has rallied sharply, trading up to $2.75 in November of this year.
Fueling the rally in copper prices, copper warehouse stockpiles at the London Metals Exchange fell about 140,000 tons in a two-month period. Though we trade the contract based on the New York Comex price, London warehouse stocks reflect the worldwide supply and demand situation of copper. Therefore, they have a tremendous influence on Comex prices. The election of President Trump, and the belief that he will lift the demand for copper because of his obsession with creating a stronger economy and his announced plan for massive infrastructure construction, has further helped push up the price of copper.
Gold
Gold is up almost 7 percent despite being one of the assets hit hardest since the U.S. election. It is a commodity that thrives on uncertainty, and this has certainly been a year of uncertainty.
Currencies
Of all the major currencies, the Pound Sterling has fared the worst; we can thank Brexit for that. It has lost 16 percent against the U.S. dollar and 12 percent against the Euro. The Pound Sterling never recovered from its dramatic drop to a 31-year low the day after the Brexit vote. The U.S. Dollar Index remains near 14-year highs, supported by a more hawkish Federal Reserve. The Mexican Peso was the only significant currency to drop more than the Pound, as it dropped 15 percent this year. We can thank President-elect Donald Trump for that. It will cost a lot of Pesos to build that wall.
What has been, possibly, the most explosive currency this year? A hint, it has suffered from two years of lackluster returns.
Bitcoin, the digital currency “mined” by code-cracking computers, has rallied more that 100% this year. It was stronger than any of the world’s “real” currencies. After a low of under $100 in 1993, it is currently trading around $850.
Bitcoin has soared for several reasons:
First, the Chinese government made it more difficult for people to take the nation’s currency overseas. This liquidity trap has made Bitcoin, which is not controlled by any government or central bank, more attractive. As a result, there has been very aggressive Chinese buying.
Second, there has been a slowdown in the growth rate of Bitcoin mining. Professional investors have increasingly adapted Bitcoin as a viable tradeable market, and more consumers are using Bitcoins and more companies are accepting it as a means of payment, creating better market fundamentals.
Finally, the perception that the world’s largest economies are growing increasingly unstable, has boosted speculative demand for Bitcoins.
My next newsletter will discuss which markets might have the greatest trading and investment potential for 2017.