Markets, Brexit and Bitcoin: 2018's themes

As the new year gets underway, expert commentators give their view on what 2018 holds in store.

Here are three big themes to watch out for over the next 12 months.

The new year has begun with stock markets in the UK and US hitting new record highs.

The Dow Jones Industrial Average rose above 25,000 points for the first time this week, while the broader S&P 500 is also at historic highs.

In London the FTSE 100 closed on Friday at a new record high of 7,724 points.

But could stock markets on both sides of the Atlantic change tack and come crashing back to earth this year?

Sonja Laud, head of equities at Fidelity International, thinks that is a possibility. While market fundamentals remain pretty strong, there are "very stretched valuations across most asset classes", she says.

After keeping the cash taps turned on for the past decade in the wake of the financial crash, the US Federal Reserve will start to cut back on the stimulus, known as quantitative easing, in 2018.

Richard Dunbar, investment director at Aberdeen Standard, says that flow of easy borrowing cash from central banks has driven markets in recent years. Investors should now be prepared for "more modest returns" in all asset classes, he says.

Mr Dunbar also expects inflation to start to rise in the US in 2018 given that unemployment is at a 17-year low and wage growth is picking up.

Despite being at record highs, the UK's stock market rally lags behind that seen on Wall Street and major European markets.

During 2017, the FTSE 100 rose in value by 7%, compared with 12% for the US's Dow Jones index and 15% for Germany's Dax.

Another topic that will loom over the UK markets and economy is Brexit, as trade talks with Brussels get underway.

Companies and business lobby groups have called on the government to retain easy access to EU markets and labour without additional costs or red tape, but the final shape of a trade deal remains unclear.

Ms Laud of Fidelity says the spectre of Brexit still hangs over the UK. "That could create a lot of volatility this year," she warns.

Vicky Pryce, chief economic advisor at CEBR and a Remain supporter, says the uncertainty about the shape of Britain's departure from the European Union has meant many companies - both domestic and foreign - have been unwilling to make long-term commitments.

Ideally they want as little change as possible from the status quo, she adds, and believes that the government is "slowly moving in that direction".

For Roger Bootle, chairman of Capital Economics and a high-profile Brexit supporter, he hopes the UK is able to strike a "deep and special" trade relationship with the EU.

But he is not too worried if that is not the outcome: "I think it's perfectly possible for Brexit to deliver some very good results for the UK even if we don't get that deal."

The surprise at the tail end of 2017 was the sudden surge in the value of Bitcoin to almost $20,000 at one point from about $1,000 at the start of the year.

Although it is not the only digital currency, Bitcoin is the one with the highest public profile and is attracting the most interest worldwide.

While some have been alarmed at the stratospheric rise in the cryptocurrency's value, others are convinced that it is now a new asset class that is set to continue gaining in value.

Catherine Mulligan, co-director of the Imperial College Centre for Cryptocurrency Research, says new ways of trading Bitcoin are allowing small investors to get in on the act.

However, 2018 is also likely to bring increased regulatory scrutiny of cryptocurrencies in a bid to protect consumers, she adds.

Unlike traditional currencies, they are not overseen by central banks and the possibility remains that some speculators could get burnt badly if the value of Bitcoin, for example, plunges.