With 2014 about to end, Societe Generale’s cross-asset team have pulled together a pile of charts that explain the biggest trends in financial markets this year.
Here are the best five, showing the big trends that have been at play in advanced economies over the last 12 months:
Inflation is dropping pretty much everywhere. Japan is the only country where inflation has risen during 2014, partly because of significant monetary stimulus and more largely due to the sales tax hike. In the US and UK, inflation is dropping closer to 1% than 2%, and in the eurozone, it’s toying with zero and below.
2. The Almighty Dollar.
The dollar was strong in 2014, back at its highest since 2010, rising against every other widely traded currency. The yen and euro are down more than 10% from their 2013 dollar levels, and Russia’s ruble absolutely crumbled in comparison to the US currency late this year.
3. Central Banks Are Diverging.
Despite a new commitment to boosting the size of its balance sheet, the European Central Bank was the big loser on this front in 2014, while the Bank of Japan promised extraordinary stimulus which will keep its asset pile growing. The Fed’s quantitative easing got tapered and ended, levelling off the balance sheet.
4. Commodities Got Crushed.
Commodities got hammered in 2014, particularly oil and particularly towards the end of the year. Those falling oil prices are likely to add to falling inflation in the year ahead, and push the eurozone into mild deflation at the start of next year.
5. The US-Europe Yield Spread.
Through 2014, the diverging outlooks for Europe and and US economies became particularly obvious. With practically no growth or inflation (and certainly no interest rate hikes) on the horizon for Europe, German yields just kept on dropping, hitting historically low levels. In comparison, with the US recovery looking increasingly solid, the end of QE and a rate hike very much on the horizon, US Treasury yields have been climbing.