The year ahead on the stock market is likely to continue in the same way as 2017, characterised mainly by one thing, and one thing only: Brexit. Many, if not all the questions relating to Britain’s future economic and market landscape stem from this issue. Will the government be able to secure that-all important deal with the EU to preserve some kind of access to the single market and begin the trade negotiations proper? Or will it all fall apart and Britain will crash out with no deal? Will this spell the end of Theresa May’s reign and will Jeremy Corbyn climb the stairs into No. 10? How will pound sterling be impacted by all this? Will companies in the City resort to contingency plans and relocate offices to Europe en masse? And, will the stock market index soar as a result of favourable negotiations, or crash out following a breakdown in talks?
There are many questions, and precious few answers which can be discerned already. What is already clear is that the economy will continue slowing down as a result of the prevailing climate of uncertainty: the IMF puts the economy on a 1.6% growth rate, slightly below the UK’s OBR estimate of 1.7% annual growth. An independent forecast by renowned consultancy Oxford Economics expects an even lower growth rate of 1.3%. Either way, these anaemic growth rates are a far cry from the 2.3% growth rate predicted for the Eurozone and the 3% growth rate the US is aiming for.
Regarding sterling, most estimates see the pound falling by double digits against the Euro, although there are also forecasts pointing in the opposite direction, such as ING’s, who believe that the exit deal has given the pound breathing space, enabling sterling to be a more appealing prospect for currency traders and investors. Any change in the unfolding of the negotiations, something very likely to happen in the next twelve months, could easily send currency markets into a kin again. 2018 is probably going to be in the sign of volatility again. A weaker pound will continue helping exporters but penalise consumers: there are going to be winners and losers.
Other unknowns can also affect the financial markets, for example the impact of the Mifid II reqgulatory requirements, which, starting in January, are expected to have the effect of slowing down trading. A series of subplots with undetermined outcomes are going to unfold during the year relating to stocks in the FTSE 100: for example, will Lloyds manage to finally hit its self-imposed 85p stock price target in the year ahead? This is symptomatic of the condition of the stock market at the moment: it could represent a very good opportunity, but at the same time laden with uncertainty. I expect a cautious year ahead, not completely devoid of opportunities, but potentially full of surprises.