London – For the financial markets and the global economy, 2017 has been a pretty good year.
All the major fears about 2017 that dominated the latter stages of 2016 — a market crash in the event of a Trump presidency, a Brexit-triggered recession in the UK, and a collapse of the eurozone following the implosion of the Italian banking system — have failed to materialise.
The economic story of the year has largely been one of positive growth and rising stocks.
That's not to say, however, that 2017 has been dull or incident free. To name but a few major talking points, we've had the Federal Reserve continuing their tightening cycle, the Bank of England raising interest rates for the first time in more than 10 years, and the unstoppable surge of bitcoin.
In markets, often the best way to illustrate what's going on is with a chart. Charts are great ways of simply explaining fiendishly difficult concepts, and can paint a much clearer picture than words much of the time.
As such, as we approach the year's end, Business Insider decided to round up a selection of the charts that we feel define what went on in the world economy in 2017. Time to take a look back.
The Bank of England hikes interest rates
The BoE aggressively cut interest rates during the 2007-2009 period in order to cope with the shock brought to the British economy by the global financial crisis, but remained on hold for more than seven years after that. Between 2009 and August 2016 the base rate stayed at 0.5%.
It then dropped to 0.25% after the bank's emergency cut in August, which intended to soothe the economy in the immediate aftermath of June's Brexit vote.
Just over a year after that cut, the bank took a step it hadn't made in more than ten years by raising rates. Sure, it wasn't a big move, taking the base rate back to 0.5%, but it was significant.
That is especially true as the Monetary Policy Committee signalled strongly that it will look to increase rates further going forward should the UK economy stay reasonably strong in the face of Brexit.
However, while the BoE's first hike in a decade is a step towards normalising monetary policy, there is still a very long way for the bank to go, and it will likely be some years (if ever) before we see interest rates back to levels seen before the crisis.
Bitcoin goes bananas
Perhaps the biggest financial story of the year is the meteoric rise of bitcoin. Sure, the cryptocurrency has been around since 2009, but 2017 marked the year when it really came into the mainstream.
On January 1, bitcoin was trading at $908 per coin. Fast forward just less than 12 months, and the price of a single bitcoin is now in excess of $16,000 as investors from around the world speculatively pour money into the asset.
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Bitcoin has caused a big divide between more traditional financial institutions and players — a large proportion of whom see bitcoin as pointless and worthless — and those who believe that cryptocurrencies, and the blockchain technology that underlies them, will change the way the global economy works forever.
In December, bitcoin's mainstream status was confirmed when the Cboe exchange started offering bitcoin futures, allowing investors to bet on the future direction of the currency.
Exchange Traded Funds are on fire
An exchange-traded fund is a passive fund which tracks an index, rather than an active investment, and seeks to outperform a given index through frequent buying and selling of individual investments.
In 2017, ETFs exist for virtually every imaginable asset class, with investment firms selling ETFs in everything from Bunds to gold, and the overall value of the market is now more than $4 trillion.
Investors have poured money into the products in the past handful of years because when the times are good, ETFs can offer much larger returns than simply investing in underlying assets, or putting money into actively managed funds, which tend to have much higher fees than ETFs.
Since 2008, the value of the global ETF market has ballooned by five times, and was described as "extraordinary," by Deutsche Bank's renowned strategist Jim Reid and his team earlier this year.
Banks get ready to move staff out of the City of London post-Brexit
2017 could well go down as the year in which the City of London lost its mojo as the centre of gravity of European finance.
With Brexit looming, major financial institutions are making plans to shift staff out of London and the wider UK once Britain leaves the European Union in March 2019.
Some announcements about staff shifts had been trailed late in 2016, but 2017 is the year that banks started to take action.
Numerous major lenders confirmed plans for new offices in the EU, with Goldman Sachs leasing a major office space in Frankfurt, Citi opening a private banking hub in Luxembourg, and Japan's biggest bank, Mitsubishi UFJ Financial Group, choosing Amsterdam for its post-Brexit EU HQ.
The chart above shows the possible scale of the job moves that could result from Brexit, as Britain loses single market access, and thus its financial passporting rights.
UBS shows us how tricky things will get for central banks in the next financial crisis
The striking chart above shows how low global central banks would have to cut interest rates to deal with a new financial crisis. The green triangles show where rates would need to go if the next crisis happens imminently.
Writing in its Global Economic Outlook for 2018-2019, a 223-page epic report, the bank argued that global rates remain so low 10 years on from the crisis, that the next major global correction could leave central banks scrambling for ways to stimulate the economy.
Pointing to the above chart, the banks economists note that global central banks, if they needed to respond as robustly as they did during the 2007-08 crisis, would be forced to drop interest rates as low as -5%. That is quite simply something that has never happened before.
"One of the concerns right now is that we're in a very mature business cycle recovery, with a lot of people asking 'When is the next recession coming?'," Arend Kapteyn, UBS' global head of economic research said at a briefing last month.
"If the recession were to come today, we'd be in trouble, because there's basically no policy space," he continued.
Low volatility defines the year for the stock market
One of the biggest stories in the stock market globally — particularly in the USA — in 2017 has been the shocking lack of volatility. The VIX, often known as the "fear index," has spent much of the year anchored near record lows, as volatility remained virtually non-existent.
That has been particularly surprising given the fact that 2017 has been characterised by heightened geopolitical tensions between the USA and North Korea, fears about the agenda of US President Trump, as well as fears early in the year about the possibility of France electing the far-right Marine Le Pen to its presidency.
Add Brexit to that picture, and volatility should really be higher than it is, leading some in the market to speculate that the VIX is "broken."
Brexit pushes UK inflation to its highest level in five years
Inflation has returned to the UK with vengeance in 2017, as the slump in the value of the pound since the Brexit vote filters through to the price of every day goods and services for regular Brits.
Inflation climbed to 3.1% in November, coming close to its highest level in six years.
Inflation's impact on the British economy is being exacerbated by the fact that real wages are actually growing more slowly than prices are rising, meaning that the average Brit is actually seeing the amount of money they have to spend decrease.
The London housing market cools down
London's property market has been insanely hot in the last few years, with prices growing wildly as investment poured into capital but the supply of affordable housing remained subdued.
2017 has seen that trend flip, with price falls widely reported across the capital.
The chart above, from the Royal Institute of Chartered Surveyors, shows how stark the fall in prices in London is compared to the rest of the country.
The London slowdown is being driven by bloated prices in the capital, slow progress in Brexit negotiations, and worries about further interest rate hikes from the Bank of England, which drive up mortgage costs.
The world's companies pass $80 trillion in value
This chart, flagged by my colleague Jim Edwards, shows that if you "calculate the value of all stocks, in all companies, in all countries, globally then technically you get the market cap of Planet Earth. In just the last few months, total market cap has rocketed to $80 trillion and is heading steadily toward $100 trillion worldwide."
"What is worrying about that progress," Edwards wrote back in November "is that final unbroken stretch of growth through 2017. Until now, world market cap looked like any other stock index: A series of incremental gains building on each other over time, with a pronounced dip around the Great Financial Crisis in 2008, followed by a healthy recovery."
Stocks hit all-time highs (over and over and over)
After hitting 20,000 points in January, the Dow Jones Industrial Average has continued to surge, coming close to the 25,000 point mark during early December.
Stocks in the USA have continued to rise throughout the year, with a combination of the soaring US economy, and improving earnings from firms pushing valuations higher.
"The new records have everything to do with earnings. You really don't need to get much fancier than that. Over time, earnings have been what's determined the direction of the market — far more than interest rates or anything else.
"It was about a year ago that earnings were really stuck in the mud, but there's been a tremendous improvement from the expected growth rate, which is all tied to the economy," Kevin Caron, a market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus told BI's Joe Ciolli in October.
The Dow's main counterpart indexes, the S&P 500 and the Nasdaq have followed suit, hitting fresh high after fresh high throughout the year, as the charts below illustrate:
The yield curve continues to flatten — possibly auguring stormy waters ahead
2017 has seen the curve on US bonds, largely seen as a pretty good analogue for the global markets, flatten even further.
At its most basic level, a flattening yield curve means that the gap between yields on longer dated debt and short dated debt are narrowing. Shorter term debt usually has a lower yield than longer term debt, as the risk investors are taking on is undertaken over a shorter period i.e. less can go wrong in a year than it can in ten.
The flattening yield curve is never really anything other than an indicator of slowing growth, which is not a good sign. As BlackRock's Aubrey Blaseo explained in a blogpost this week:
"Fixed Income 101 tells us that this foreshadows slowing economic growth. More worrisome, when the two-year/10-year spread hits zero, or less (yield curve inversion), that’s generally considered a slam-dunk for impending recession."
People are getting very worried about China's ballooning debt
China's booming economy has been fuelled in large part by racking up huge amounts of debt, which some believe is starting to become unsustainable.
Ballooning levels of debt and dependency on credit to fuel growth continues to pose a major financial stability threat to the global economy, and could be the catalyst for the next crisis, according to an International Monetary Fund report from December.
"Credit growth has outpaced GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is now about 25% above the long-term trend, very high by international standards and consistent with a high probability of financial distress."
Earlier this week, Deutsche Bank identified China as having nearly twice the probability of a financial crisis than any other major global economy right now.
Provident Financial loses three-quarters of its value in a single morning
Shares in Provident Financial, a UK-based door-to-door lender, lost more than 70% in 2017 after a series of boardroom exits, profit warnings, and two investigations by the Financial Conduct Authority.
Provident offers door-to-door loans to subprime borrowers who would usually be turned away from traditional lenders. It also owns online lender Satsuma, which is advertised on TV. However, it's fortunes took a turn for the worse this year after the company changed from using self-employed agents to full-time "customer experience managers."
After that change debt collection rates plummeted from 90% to 57%.
Provident then suffered even further after it was announced that the FCA is looking into the group's car and van financing franchise Moneybarn. The regulator is making sure proper affordability assessments were made and customers in financial difficulty are treated fairly.