Economically, August should be boring. Once upon a time, nothing happened. In the stock markets, the maxim was "Sell in May and go away." The assumption was that any shares sold in late spring could be bought again in early October for a winter season of trading because nothing would happen in the meantime.
Once upon a time does not exist any more. In fact, we are very far from it. As the FT has reported today:
A global stock sell-off deepened on Friday, with the Nasdaq falling into a correction, as a sharp slowdown in US hiring piled pressure on an equity market already reeling from a steep downturn in semiconductor shares.
The Nasdaq Composite index fell 3.2 per cent, meaning it has now lost more than 10 per cent from its all-time high on July 11.
The downturn followed the latest in a string of underwhelming tech earnings.
Other influences are declining employment and a realisation that the Fed's attempt to keep interest rates high, which attempt has artificially boosted the value of shares, is now going to fail. As the same article notes (and this is edited):
US bond yields tumbled following the jobs data as investors flocked to the safety of Treasuries.
The US 10-year yield sank 0.14 percentage points to 3.83 per cent, the lowest since December.
Investors now expect the Fed to lower borrowing costs by a full percentage point by the end of the year.
This is not, of course, what the Fed is saying. They're making very different noises, just like the Bank of England. But then, both thought their high interest rate policies would not deliver a sharp recession, and that is exactly what both are now likely to do, hence the reaction of markets in the US and the tumbling value of securities.
As I have long said, interest rates have been too high for far too long. And if the US Fed has no choice but to react to this, how long will it be before the Bank of England is forced to do so?
And how long will it be before Labour's entire growth-based strategy lies in tatters all around it?
This may not be the quiet summer many thought it might be economically.
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This was a quiet summer? Where was that?
The question has to be raised whether Jerome Powell is playing politics in a presidential election year. His political inclination appears to be Republican.
And the same can surely be said of the Bank of England – Conservative Neo lib supporters to their core; actively working to undermine a Labour Government?
@AliB
The BoE Conservative Neolibs hardly need worry, as Starmer’s bunch of Keystone Kops 4th-raters are doing a good enough job on their own undermining their own Administration.
I mean, virtually your first act is to steal economic blankets from some of the poorest in society by scrapping the Winter Fuel Allowance when you won’t cap bankers’ bonuses and promise to send £3.6bn a year to Ukraine.
I’m powerfully reminded of that wonderful ending to episodes of “Phoenix Nights”, where an assemblage of some of rhe direst stage acts in existence audition before Peter Kay in the hope of “starring” in his floor show.
The cry from Mel Brooks’s “The Producers” springs to mind: “Next”! If only. We’ve possibly got another 5 years of this.
Unless the “nasty smell” referred to by Pilgrim Slight Return, and echoed by Bernard Hurley, turns into an exploding extended belly of the underclass before then.
We’ve seen that Starmer is setting up a task force to try and nip Southport type riots in the bud, arresting participants before they riot! That might be a more widely preventative measure than it appears at first sight!!
And all backed up by the draconian anti-protest legislation brought in in the last 5 or so years, in the time since Starmer took over the Labour Party (Faux-Labour Party, actually), with the effective backing of Faux-Labour.
“the Fed’s attempt to keep interest rates high, which attempt has artificially boosted the value of shares, is now going to fail”
How on earth does keeping interest rates high boost the value of Shares?? (perhaps other than Banks which make up next to nothing of the Nasdaq, the index you refer to)…All asset classes – equities, bonds, property, private equity, you name it they will all be higher if interest rates were lower.. to be candid you expose your lack of understanding of financial markets.
Ok then, explain the FT article then
I’m guessing punk passed you by Richard?
Somehow I can’t see the bassist of the Sex Pistols sharing or endorsing the views of a Worstall astroturfer
That’s where the name came from…
I never saw the Pistols
I did others
Well, when one thought that getting rid of the party of ‘order’ would sort anything out, some other comes along and shows us that, yet again, punks not dead.
Did you actually read the FT article or did you read it but not understand it?
It simply says that due to disappointing earnings news, share markets (Nasdaq) have declined and that money has flowed into long-dated US Treasuries, causing yields to fall / prices to rise.
It said nothing about high interest rates being used to support the value of shares – indeed basic economics suggests the opposite is true, equity markets perform stronger when interest rates are low. I can’t believe you can get this so wrong and yet keep telling us about what an amazing economist you are?
Oh dear
The world does not fur your theory
The reality fits mine
And then you accuse me of not understanding your theory
Have you ever thought your theory might be wrong? There is a discussion of that in the FT this morning
Financial markets are an optimism index.
It is not rational and often reflects wishful thinking.
Sooner or later reality bites.
All that Richard calls for is more realism.
Interest rate hikes represent an intensification of class war putting more money in the accounts of wealth holders.
That’s good for the optimism of the wealthy.
But it doesn’t do much for everybody else.
Unless you believe that the welfare of the masses are the crumbs from the rich’ s table.
You’ve just written a load of word salad and not addressed the point that Richard was trying to make.
The valuation of a share is Economics 101, yet Richard seems to be unaware of this, and refuses (because he can’t) to provide any evidence of his claim. Any simple google search will produce tens of thousands of searches that contradict what Richard claims.
It’s incredible that a ‘Professor of Political Economics’ doesn’t understand this concept.
You do know that everything taught in most Economics 101 courses bears precisely no relationship to any known truth, don’t you?
Roger
Close, but no cigar.
Markets are ‘opitimism optimisation’ machines.
So they are much worse than we all think.
Mr Matlock,
Rather than following intuitive speculation it is usually advisable to look for real testable evidence. David Lin, of Nasdaq Investment Intelligence, in November 2021 conducted long-term correlation and interest rate sensitivity analysis for three major US indices (NDX, SPX and Dow Jones) His Conclusion?
“…. over 30 years of equity market history, it was shown that stocks generally benefitted from rising rates”.
His paper is available. I leave you to conduct the work to deconstruct Lin’s conclusions. I am always happy to learn, but I look first for well tested evidence, before asserting a universal truth.
Anyone with a sense knows this. If the price of bonds falls as rates rise the money moves to shares.
Hmmmm……….down the road from me, the city of Nottingham is getting ready for what looks like a bit of trouble this weekend as we have seen elsewhere in the country recently.
As long as people like Starmer, Reeves and Mandelson continue to ignore the hardships of people in this country that they seem too timid to deal with, it will only fuel ongoing discontent that will be ruthlessly exploited and gamed by some very unscrupulous people AGAIN.
BREXIT was just the beginning. What will come next could be much uglier.
I think that you are right Richard.
There is a nasty smell in the air in this country…………..and it is not just our sewage.
I can’t remember a smell in the air this bad since Peter Griffiths won Smethwick in the 1964 general election.
Add Leeds, Manchester, Blackpool to the list … and Stoke-on-Trent? (Sky News)