2012: The Year Catastrophe Was Averted
There were many predictions made for 2012 ranging from the catastrophic such as the Euro break-up to the truly apocalyptic like the end of the Mayan calendar on December 21, which was also supposed to coincide with the end of the world.
Fortunately, neither happened, but 2012 was nonetheless a drama packed year. Central banks were once again very prominent players in the markets and below are some of the highlights:
Super Mario to the rescue
Probably the biggest event of the year from the point of view of forex traders was the commitment made in July by Mario Draghi, the head of the European Central Bank, to do whatever it takes to save the Euro. At the time peripheral Eurozone bond markets where in turmoil and the punch drunk Euro was twisting on the ropes in the forex markets. Draghi's was a timely verbal intervention, which turned the tide and earned him the 'person of the year' award from the Financial Times.
Bernanke gets more radical
Ben Bernanke who once famously made a speech about dropping money from helicopters to fight deflation got more radical in 2012 with quantitative easing and set some new targets. Mortgage-backed securities were added to the Fed's shopping list of assets to help drive down funding costs to the real estate sector and monetary policy was aligned explicitly with job creation. Meanwhile, some extra leeway was given on tolerating inflation.
Fiscal pot boiler
Another big preoccupation for the markets is the looming fiscal cliff when a series of automatic tax rises and government spending cuts kick in from December 31 if politicians can't agree otherwise and as of December 21 they couldn't. This piece of political melodrama and posturing may not play itself out until early in the New Year.
Obama does it again
In November US President Barack Obama defied the odds, thanks to a very effective election campaign, to win another term in the White House against a backdrop of disappointing economic performance and sharply divided public opinion over his presidency.
Finally improving US real estate
Probably more important than the election results is that the US housing market started to show tentative signs of recovery this year, albeit from a very low base. Housing starts have been improving and prices in many areas of the US have been stabilising. Real estate is a crucial driver of the US economy so if those improvements are sustained they could become a tailwind for GDP growth in 2013.
Changing of the guard in China
China undertook its once in a decade leadership change, the ramifications of which are yet to be known. This is a moment of profound significance for the world's second largest economy where the emphasis seems to be shifting from export and infrastructure driven growth towards domestic consumption through measures such as lifting workers' wages and controlling inflation.
Shinzo Abe back at the helm
Shinzo Abe won a landslide victory in Japan in December to become Prime Minister for a second time. He was elected on a ticket of vowing to stimulate Japan's moribund economy with promises of big infrastructure spending and is pressuring the Bank of Japan to do more quantitative easing and to weaken JPY.
First foreigner to head Bank of England
In November in a bid to pick someone from outside the tarnished British financial establishment, the government opted for a Canadian central banker, Mark Carney, to take over at the Bank of England on July 1, 2013. He's yet to get his feet under the table and is already ruffling feathers with his future colleagues. One of his ideas is to dump the Bank's inflation target and replace it with a GDP growth target and promises plenty more radical thinking once in charge.
Brazil overtakes UK economy
Partly highlighting the UK's deep economic problems and the continued rise of emerging market countries, in March Brazil overtook the UK to become the world's sixth largest economy after Japan was overtaken by China in 2011 to be the world's second biggest economy. Rising emerging market countries is leading to greater interest in trading their currencies, in cases where they are freely floating.
This year saw more endless marathon meetings between Eurozone leaders as they struggled to contain the financial crisis threatening to rip the region apart. However, progress was made on dealing with Greek debt and Eurozone leaders are figuring out ways of keeping bigger members such as Italy and Spain in the club. However, the big story is that Eurozone took further major steps towards becoming ever more integrated.