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I’ve got good news for all those who didn’t find 2016 volatile enough.

Yep, 2017 looks likely to top 2016 for volatility. Hard to imagine, perhaps. Even though the CBOE S&P 500 Volatility Index (VIX) spent much of the year near multi-year lows, because it measures volatility in the a part of the financial market that wasn’t very volatile in 2016, other parts of the financial markets saw huge fluctuations. After all 2016 saw a 21% drop in the Shanghai Composite Index in January; a massive political surprise in the U.S. Presidential election (and a subsequent rally to all-time highs for U.S. stocks), a big deal from OPEC on cutting production, which reversed the collapse in oil prices, a race among the Brazilian real, the Mexican peso, and the Turkish lira for worst currency in the world, and the collapse of global bond prices, and more.

But the calendar, as we know it now, promises even more big events, more surprises, and more volatility for 2017. Enough more that I think there are enough big market moving events so that each month has the potential to deliver at least one.

Many of these events and macro trends have a direct impact on the three big investing questions for 2017.

  • First, will the U.S. dollar move still higher? Federal Reserve policy bias toward higher interest rates in 2017 says yes. So does continued turmoil in the EuroZone with an outside chance that enough negatives will line up to make 2017 the year that broke the euro. But Congress and a new President could blow a big enough hole in U.S. fiscal credibility and the U.S. budget to negate Fed policy.
  • Second, will EuroZone elections and a chaotic Brexit bust the euro? It’s an outside chance in my opinion, but elections in France, the Netherlands, and Germany could be scary enough to send the joint currency below parity with the dollar.
  • Third, will China descend into a banking crisis and a significant drop in economic growth? That would be more than enough to take emerging markets in general down with the price of China’s financial assets.

I think the worst possibilities for 2017 are outside chances. Odds are that the worst won’t happen. But with U.S. stocks trading near all time highs, the dangers from these unlikely events are considerable. And certainly bear watching.

So here’s my month by month forecast for the year ahead of the most dangerous 12 months for macro trends and big events in 2017.

January: Officially in China 2017, which begins on January 28, is the year of the rooster. I think, however that we should call it the year of cash. And print January in bright red ink. Cash flows out of China turned into a flood in 2016; in 2017 the flood is likely to continue and to hit a really threatening benchmark. In November another $70 billion in cash flowed out of China as individuals looked for safer places to stash their wealth and as the People’s Bank of China sold dollars and bought yuan in a not terribly successful attempt to prevent a further drop in China’s currency. The November outflows brought China’s foreign reserves down to $3.05 trillion, the lowest level in 11 years. Some overseas economists and analysts think that the $3 trillion level is a psychological threshold that the People’s Bank will strive to defend. We’ll get a chance to see if that’s true in January. China has capped the amount of cash that any Chinese individual can move overseas for any purpose to an annual $50,000. That limit gets reset in January so all of those who reached that level in 2016 will have new funds available to move overseas. Add in that the Chinese New Year holiday–from January 27 to February 2 this year–always presents a big monetary challenge to the People’s Bank as it first tries to flood the banking system with liquidity for holiday purchases and then tries to remove that liquidity from the system after the holiday ends and you’ve got a recipe for monetary mistakes against a background of a surge in cash leaving China. The potential locus of any danger is the Shanghai stock market, which always react strongly to increases/decreases in liquidity and then rippling outward from that, emerging markets in general, which always react strongly to anything that suggests slower growth in China. (One other element of this story to watch in January is Apple’s (AAPL) earnings report due January 24. If Apple, as reports have it, says that it has or will cut production on the iPhone 7, that would put downward pressure on the shares of Apple suppliers in China and elsewhere in Asia.)

February: This is the month when speculation about what a President Donald Trump and the Republicans who now control both houses of Congress starts to turn concrete. If President Trump follows tradition, he’ll deliver his first State of the Union Address around February 3 and drop a budget on Congressional desks not too long after that. By that time the 115th Congress, which convenes on January 3, will have been in action for a month. The stock market rally that followed Trump’s surprise election in November was predicated on the belief that Republicans would quickly move on Trump’s promise of a $1 trillion infrastructure package, deregulation, a big tax cut for individuals and an even bigger tax cut for corporations. The potential volatility here comes from the possibility of disappointment–what would the stock market do if, for example, the infrastructure package runs into trouble from conservatives in Congress? AND for the possibility of actually enactment of Candidate Trump’s promises. What would financial markets do if they started to worry about the likely Federal Reserve reaction to a big fiscal stimulus package and a big tax cut? There’s also the possibility that non-Presidential action, that is proposals by Congress, could unnerve the financial markets adding a big dollop of uncertainty to the mix. Congressional Republicans have, for example, promised to quickly repeal Obama Care (aka the Affordable Care Act) without producing anything to replace it. They’d handle the potential gap by pushing off the effective date of repeal by three years or so. But this could lead to the collapse of the current Obama Care insurance market as insurers move to get ahead of repeal. I see similar uncertainty in proposals to scrap Dodd-Frank financial regulations (which banks and others have spent billions in meeting), changes in Department of Defense spending programs, and, the Big Mamma of all uncertainties, the possibility of some tax and tariff combination designed to balance U.S. imports and exports. The post-November rally focused only, in my opinion, on the possible benefits from Trump and Republican proposals. In February some of the disruptive negative effects of that program will become increasingly visible. Uncertainty is never a friend of the stock market–especially if that market is trading near record highs. In February I’d especially watch technology shares (Apple is likely to disappoint on earnings on January 24 and Facebook (FB) will probably show quarter to quarter drops in margin and growth rates when it reports on January 25) and the technology and financials heavy NASDAQ Composite index. Also check the Russell 2000 small cap index since small caps are more volatile than the big caps in the Standard & Poor’s 500 both on the up and downside.

March: Ah, the federal government debt limit. Again. The last debt limit suspension, from November 2015, expires this month, on March 16 to be exact. That puts the debt limit back into effect with a new, higher $20.1 trillion ceiling. But the Bipartisan Policy Center calculates that the government will run into that limit almost immediately and the Treasury will be forced to take its by now ordinary extraordinary measures to keep the government paying its bills until Congress can act to raise the limit. That is, if Congress will act to raise the limit. The last couple of times we’re been down this road Republicans used the occasion of the debt ceiling “crisis” to bargain for budget cuts in exchange for a higher ceiling. The political game is a bit different this time around since a Republican majority in Congress will be negotiating to avoid a shut down with a Republican President. Expect, however, that the extreme right of the Republican House majority remains opposed to government spending and will try to use this occasion to force cuts in discretionary spending. The bargaining is likely to get very wild with the Democratic minority holding the swing position on any extension of the debt ceiling. Treasury looks like to be able to use those extraordinary measures to put off any actual government default on its bills until the summer of 2017, but the available time isn’t infinite. And global financial markets will be watching and trying to figure out how much this latest battle should erode their faith in U.S. Treasuries and the U.S. dollar. This battle is likely to provide yet another push to drive Treasury yields high. Which would mitigate the damage to confidence in the dollar. But this crisis should make the yen and the euro look more attractive as safe haven currencies.

March is also supposed to bring the formal triggering of Article 50 that sets the clock ticking for negotiating the United Kingdom’s exit from the European Union. At least that’s the schedule set by Prime Minister Theresa May. Triggering Article 50 gives the two sides two years to negotiate the terms of their separation. More and more the politics inside the European Union point toward a hard Brexit where remaining members force the United Kingdom to chose between any kind of favorable trade terms and the ability to limit immigration into the United Kingdom. This situation isn’t likely to get better after the Dutch election this month or the French election in April.

In the Netherlands, the once fringe Party for Freedom, led by Geert Wilders, is near the top of the very fragmented Dutch polls with about 28% support. The party’s platform combines hostility to immigrants with opposition to the European Union and the euro. At best Wilders will push mainstream Dutch parties into deeper Euroscepticism. At the worst, his party might actually win–and push for a Dutch exit from the euro.

April: What’s a year without an election or two or three that threatens the status quo? In the second critical European election of 2017, France votes for president on April 23. Sitting president Francois Holland has decided not to run for re-election–in November only 4% of those surveyed thought he was doing a good job. Which has left Marine Le Pen, the leader of the far-right National Front, and former Prime Minister Francois Fillon, who beat more moderate former Prime Minister Alain Juppe to win the Republican party nomination, as the two leading candidates. (Hollande’s Socialist party will hold its presidential primary this month.) Polls show Fillon beating Le Pen in the race, although probably not until a second-round run off. That would be good news for the euro since Le Pen advocates pulling France out of the joint currency–which would, combined with Brexit, quite possibly kill the monetary union. Fillon wants to keep France in the euro but he advocates a hard exit for the United Kingdom. Fillon, though, would upend major portions of the current French rules on labor–and end of the 35-hour week, for example–and his pursuit of his platform would put French unions into the streets. Not exactly reassuring to those hoping for higher economic growth in the EuroZone in 2017.

May: When OPEC agreed to cut production by 1.2 million barrels a day by January, the organization agreed that the new capacity limits would run until May. By the time OPEC meets on May 25 to negotiate an extension to that November 30 agreement, it will be clear who is meeting the cuts agreed upon at the end of 2016 and who is cheating–and of course whether the whole agreement has been a farce. I’d expect that the May talks will be even more contentious than those in November since its virtually certain that some OPEC members will have cheated on their assigned quotas and there will be substantial dissatisfaction among the more hard pressed members of OPEC that oil prices haven’t climbed higher in the wake of the deal. Russia’s willingness to continue the reductions in production it promised in November (as well as its ability to actually deliver the agreed upon cuts) will be severely tested by the country’s big budget deficit and the desire of the Putin government to generate positive economic growth in order to restore some hope to Russia’s hard-pressed consumers. (The World Bank projects that the Russian economy contracted by 0.6% in 2016 and the country’s central bank is projecting 1% economic growth for 2017.)

June: The CME’s Fed Watch calculator, which looks at the prices in the Fed Funds futures market as an indicator of financial market expectations on Federal Reserve interest rate moves, right now isn’t showing a majority in the futures market betting on another interest rate increase from the U.S. central bank until June. In that month the odds of a rate increase climb to 62.1% with 46.7% odds of a 25 basis point increase and 15.4% odds of a 50 point increase. The long time before the next anticipated interest rate increase means there’s lot of opportunity for the futures market to be wrong and for the Fed to move earlier than expected. (It’s hard for me to see the Fed moving until it has a better idea of policy and actual legislation from the Republicans in the executive and in Congress, so I’d say May 3 is the earliest meeting with a substantial likelihood of a move.) But even a June  increase will strengthen the dollar and raise interest rates enough to slow the U.S. economy a bit. (If the Fed moves, it also probably means that inflation has climbed to near the Fed’s 2% target.) The biggest effects are likely to be felt in emerging markets as companies there are forced to pay back loans in more expensive dollars and as emerging market currencies face greater competition from a stronger dollar. Another Federal Reserve interest rate increase would be especially painful for the struggling Brazilian and Mexican economies and currencies.

July: The post-November election rally has been fed on a diet of optimism that the actual outcome of Candidate Trump’s proposals will come out well on the plus side when all the details are in place. By July those details–including the changes to Trump’s plans made by Congress–should be apparent by July. That’s the likely schedule for actual legislation on the proposed $1 trillion infrastructure package, for cuts to individual and corporate taxes, for changes in tariffs and trade policy. With the transition from vague proposals to actual legislation it will become possible to do the math on Trump’s tax cuts and spending plans–will they blow a hole in the budget as some now contend or will they be somehow roughly revenue neutral? How will an actual budget proposal (Congress won’t vote on budget and appropriation bills until much later) manage to jam pledges for more defense spending and more infrastructure spending into a mix that is supposed to reduce the deficit? This month marks an important test of credibility for the Republican-run federal government. Global bond markets and credit rating companies will be paying attention.

August: Nothing much is scheduled to happen in August, but the calendar makes it an important transition month–and therefore potentially volatile. If the Federal Reserve raises interest rates in June, the first increase in 2017, speculation will immediately focus on when the Fed might raise rates next. There is no August meeting and the October/November meeting doesn’t include a scheduled press conference, so the odds will point to either a September or December move. You can expect uncertainty ahead of both those meetings as traders and investors work to position their portfolios for whatever. Back on December 8 the European Central Bank decided to keep its program of asset purchases running until December 2017. The pace though will fall from a monthly 80 billion euros in buying through March to 60 billion euros a month beginning in April. The very live question, of course, is will the bank wind up its program in December or extend it yet again. The bank meets on July 20–much too early for even an indication of what Mario Draghi and company plan–and then again in September, October, and December. If the Germany economy continues to show signs that a cheap euro is leading to inflation and potential overheating, the pressure will be on the European Central Bank to quash inflation expectations sooner rather than later by announcing an end to the program of asset purchases. August has been a volatile month for China’s financial markets in recent years and with the People’s Bank trying to manage a rising bad debt problem in the banking sector, a falling yuan, and big outflows of cash, there’s a good likelihood of a monetary policy move in this month that could roil the markets. Possibilities include a one-time devaluation (10% or so) of the yuan or the end of restrictions on property purchases in order to add to faltering economic growth. The pressure will be on China’s central bank to deliver stability before November’s meeting of the Communist Party Congress in November–such a search for stability can lead a central bank into getting overly tricky on policy. Oh, and let’s not forget that the technology sector, which by this point is likely to have had a lackluster 2017, will be making its own transition to its best two quarters of the year and the introduction of a new iPhone from Apple, which the company hopes will revive growth in this key market.

September: Another European election, this one absolutely crucial to the continuation of the European Union and the euro. German law puts the next parliamentary election in Germany sometime between August 27 and October 22. Traditionally the country runs its elections in late September to avoid the school holidays. This time around German Chancellor Angela Merkel, running for a fourth term, faces low approval ratings, fears of terrorism fanned by recent terrorist attacks in the country, and the deep unpopularity of her advocacy for relatively open immigration into the European Union for refugees. Merkel’s own Christian Democrat/Christian Social governing party is fractured by Merkel’s policy on immigration. The likelihood is that the the party will win the most seats in the Bundestag but not enough to gain a majority and will have to form a coalition government including the liberal Free Democrats. A key issue will be the vote for the anti-immigrant, anti-euro right wing Alternative for Germany party. That party is likely to win enough votes to enter the Bundestag. Will the election weaken Merkel enough so that she can’t single-handedly hold the euro/European Union consensus together against growing opposition in Italy, France, and the Netherlands? Especially if the German economy is running so strong that inflation is a danger and Merkel’s opponents can reasonably demand that the European Central Bank abandon its current policy of a weak euro and higher inflation in favor of a policy of tighter money tailored to the needs of the German economy.

October: This is the month–we’ll have three quarters of earnings reports–when we’ll find out whether the earnings optimists or pessimists were right about earnings growth for 2017. The spread between the two sides is large. The optimistic consensus is looking for 13% year over year earnings growth for the companies in the Standard & Poor’s 500. That projected growth rate, the optimists argue, justifies not just the current record level of the S&P 500–2257.83 at the close on January 3–but an advance of maybe 10% from here. The 10% figure feels to me suspiciously like a Wall Street default projection designed to keep investors on board. I would point out that a 10% projected return on the optimistic side isn’t exactly a huge inducement for staying invested during a year with the risks that I’ve outlined in this post. More pessimistic earnings projections include 8.7% from Zacks and 6% from Goldman Sachs. Anything like Goldman’s forecast would be a severe disappointment for this market. And it’s fairly easy to point to potential causes for that lower projection–such as the strong U.S. dollar hitting revenue and earnings for U.S. companies doing business overseas, and higher interest rates from the Federal Reserve. Does anyone–including myself–really know what earnings growth will be in 2017? No way. But the potential for volatility is certainly present in the current forecasts.

November:  China’s Communist Party meets only once every five years to pick its top leaders. There’s little doubt that Xi Jinping, will win a second term as General Secretary (and President of China.) But China watchers will be paying close attention to what happen to younger officials such as Sun Zhengcai, Hu Chunhua and Chen Min’er are promoted to the Politburo Standing Committee. That would be a sign that Xi is thinking, at least, of stepping down after his second term as General Secretary in 2022. (Xi is limited by the Chinese constitution to two terms as president but the position of General Secretary of the party, an office with much more power than that of president, is not term limited. Xi is sending clear signs that his policies before the congress will emphasize Chinese nationalism, China’s ability to project power outside its borders, solid economic growth of at least 6%, and total party control of Chinese society. That agenda is fraught with the possibility of conflict with a Trump administration that seems convinced that China rather than Russia is the biggest great power opponent facing the United States. I don’t think Xi is contemplating giving President Trump even a token victory on trade and the value of China’s currency.,China party Congress.

December: OPEC will go into the end of the year having failed to remove the budget pressure on its most hard-pressed members, who need oil prices of better than $100 a barrel. And with an already deep conflict between Iran and Saudi Arabia over influence in the Middle East having gotten more heated and more bitter after Iran’s successful intervention in Syria. Holding the line on the current reduction in production agreed in November 2016 will be hard. Getting any greater capacity cuts in the face of resurgent production from U.S. oil shale producers and from the North Sea, Libya and Nigeria will be extremely difficult. Exactly how difficult will depend on OPEC’s success is balancing supply and demand in 2016 and in reducing the global surplus inventory of crude. If oil prices are still in the vicinity of $60 after a year of production cuts, there’s a good chance that OPEC will be unable to reach a new deal. Any failure on that front would send oil prices tumbling.

Those are the big macro risks I see for 2017. Nothing guarantees that all or any of those potential risks will actually materialize. And you’ll note that I haven’t mentioned any of the things that could go right in 2017. That’s more appropriate, I think, for my next big picture piece on the best stocks for 2017. I’m typing as fast as I can on that one and hope to have it done within the week.