This past year had its ups and more than its fair share of downs, this is 2015 in review. China’s meltdown, the Greek crisis, an unprecedented year of mergers and acquisitions and oil prices are just a few of the stories that made 2015 a year to remember (or possibly a year to forget).
Francogeddon
2015 started dramatically when the Swiss National Bank announced that the Swiss franc would no longer be pegged to the euro. The franc initially soared around 30% and closed January 15th 2015 at over 20% against the US dollar and euro. The sudden jump in value devastated some currency traders, a foreign exchange broker (Alpari) collapsed, and Christine Lagarde, head of the International Monetary Fund, called the move “a bit surprising”. Long term the higher value of the Swiss franc could mean Swiss goods will be more expensive and less competitive.
China’s slowdown
China’s slowdown made headlines around the world and caused demand for commodities to fall short of expectations. Overall the Shanghai composite index was actually up nearly 10% in 2015, but that figure doesn’t tell the whole story. Monetary easing, market liberalisation and margin investing led to huge growth in the stockmarket, but also greater market volatility. In the summer of 2015 a market crash wiped out 43% ( worth roughly $5 trillion) of the value of China’s stocks.
After decades of near double digit growth, China posted lower than expected growth in 2015, prompting the government to devalue the yuan with the largest one-day loss in twenty years. Despite this devaluation and other measures taken by the government to increase economic output, China’s new lower rate of growth is likely to become the new normal in the year ahead.
Mergers
2015 was the year of mergers. Global mergers and acquisitions totalled $4.3 trillion, including the $104.2 billion merger of Anheuser-Busch InBev NV and SABMiller PLC, the $130 billion merger of Dow Chemical and Dupont and seven other deals worth over $50 billion each. Low interest rates around the world made financing these mega deals more manageable, and the still stuttering global economy encouraged pragmatic industry leaders to consolidate market share and preserve margins.
The merger of Dow Chemical and Dupont reflects the defensive nature of 2015’s mergers. The chemical giants will first merge, and then spend the next two years splitting into three separate companies based on the products they produce, reducing costs and increasing efficiency.
Oil Prices
In June 2014 Brent crude went for $116 a barrell, but was just $50 a barrel at the beginning of 2015. Last month, in December of 2015, oil hit an 11 year low with Brent crude dropping to $36.05 a barrel. Oversupply, caused first by America’s fracking boom, and then by OPEC’s intentional decision to flood the market to suppress prices and preserve their own market share, combined with slacking global demand to keep prices low. Recent developments may further reduce prices in the coming year. Lifting sanctions on Iran, and the end of the US export ban could further flood the market with oversupply. Moody’s, a credit rating agency, has cut its forecast for oil prices in the coming year by $10 a barrell.
Low oil prices have hit oil producing regions like Alberta particularly hard. Extracting oil from tar sands is more costly than other methods, and low oil prices are forcing producers in Alberta into the red. Thousands of jobs have been lost, wages are down, unemployment is up, house prices are falling and, according to some experts, oil will likely fail to rebound to $100 a barrel for years – rendering the tar sands uncompetitive.
Emergency Grexit
Greece’s and the eurozone’s troubles started long before 2015, but certainly reached a head, and, thankfully, a tentative solution this past year. Alexis Tsipras and his left-wing Syriza party won an election on January 25th on a platform rejecting austerity reforms imposed by the EU in exchange for a bailout. Many predicted that turbulent times were ahead for Greece and the eurozone, and some predicted that Greece could default on its debt, and leave the eurozone, either voluntarily or otherwise. In June the country came within a whisker of defaulting after tense negotiations stuttered. In July Tsipras won a referendum to strengthen his mandate in Greece, then after 17 hours of negotiations Greece signed a bailout agreement with the EU on July 13th. Outraged that the bailout deal included further austerity policies some Syriza MP’s defected. Syriza lost its majority status in July and August, threatening the bailout, but then won a snap election in September.
All told, between winning the election in January 2015 and signing the final agreement on August 14th, there were 15 Eurogroup meetings, 3 summits between Tsipras, Germany’s Merkel and France’s Hollande, a eurozone summit and countless meetings between experts and representatives from Greece and the EU. A so called Grexit (Greek exit from the eurozone) would have been a huge blow to the EU, Greece and markets around the world. For now the deal seems to be holding up, but it came at the expense of market volatility in the EU and global uncertainty for much of 2015.
Feds raise rates
It took until December for Janet Yellen, chair of the US Federal Reserve to raise interest rates for the first time since 2006. Speculation persisted much of the year over when the central bank would finally make the decision. Some believed that the rate increase would occur much earlier in the year but uncertainty in the global economy (particularly in China, the EU and in war zones in the middle east), plummeting oil prices and other factors kept the Fed from making a move until the final month of 2015. Despite some ongoing international uncertainty, in the US itself unemployment is down, growth is up and the country’s economy seems to be back on course. Although rates rose to 0.25%, if the US economy stays on course rates could rise to 3% by 2019.
The lowly loonie
As oil prices declined throughout 2015, so did the loonie, meanwhile our neighbours to the south saw their economic recovery strengthen the greenback. The result? Canada’s dollar suffered against the US dollar for much of the year and was down around 17% year on year. All totaled 2015 was the second worst year in history for the loonie. Only 2008 was worse, when Canada and much of the world was in the midst of the financial crisis and the Canadian dollar fell over 18% in one calendar year.
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