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Trump, China & Brexit: All the times the market consensus was wrong

LONDON: 2017 was a year of surprises. Broadly speaking those..

LONDON: 2017 was a year of surprises. Broadly speaking those surprises have been good ones for those in the markets, with many of the big negative events forecast for the year failing to materialise. To name just a couple of examples, there was no Brexit-triggered recession in the UK, no collapse of the Italian banking system.

But what were the biggest mistakes that the consensus of forecasters made during the year?

Writing in a note to clients earlier in December, Sam Bonney, an FX strategist at Japanese lender Nomura, decided to have a look at what – in his words — "caught the market out this year."

Bonney identifies four key areas where the market consensus proved to be way wide of the mark this year. Check them out below.


"Going into 2017, it was all about the US. The prospects of substantial fiscal stimulus and an 'America First' agenda from President Trump were expected to drive US rates and the dollar higher. In fact, quite the opposite happened," Bonney wrote.

Instead, Bonney notes, Trump struggled to pass legislation, and the rest of the world managed to catch up with the US in terms of growth.

"Trump took much longer to get fiscal policy through than expected. Moreover, whilst US growth forecasts were unchanged through the year, the euro area, Japan, China and the UK all saw growth revisions substantially higher," Bonney wrote.


"Whilst US inflation disappointed, the Fed hiked more times than economists were forecasting (three vs two). Short-end US rates are over 55bps higher in 2017. Despite this, the dollar depreciated as the rest-of-world 'catch up' story materialised and other central banks moved towards the Fed in the policy cycle," Bonney said.


Another year, another misplaced consensus view on the world's second largest economy. "Consensus was wrong about China for the second year running," Bonney wrote. "Growth in the world's second-largest economy was 0.3pp above expectations, with President Xi stabilising the Chinese economy ahead of the 19th National Congress."


Finally, Bonney argued that forecasters overestimated the negative impact that Brexit would have on the UK economy, while also getting the Bank of England totally wrong.

"UK economic growth surpassed economists' expectations in 2017," Bonney wrote.

Original Article


ET Markets


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