All eyes remain on Wall Street
WELL, Asia wanted to believe, to really, really believe — that the worst was over for global share markets.
Wall St came back a bit last week and on Friday the three key markets to our north — Hong Kong, Shanghai and Tokyo — went gangbusters.
Hong Kong roared over 4 per cent to recoup all its losses for the month, while Shanghai went up a more restrained 3 per cent and Tokyo a little less than that.
Our market, in contrast, was all over the place on Friday, albeit finally finishing in the black, if just with a 0.1 per cent lift. To stress, that wasn’t a full 1 per cent, just a tenth of that.
We were up 3 per cent for the week but we did not recoup all the October losses. It wasn’t just the “unfortunate” consequence of running into the big bank profits.
The underlying driver, Wall St, had a good but not a spectacular week.
Despite going down at the close overnight Friday, the Dow was up about the same 3 per cent as us from the low point of the week before.
Three critical points need to be made about what’s been happening in New York.
First, the market remains at very, very high levels — at the worst of the recent drop, the Dow was just 9 per cent off its all-time peak at the start of October.
But secondly, that masks continuing almost-daily volatility.
One day last week the Dow traded through a 1000-point range — it could have finished that particular day with a big rise or a big fall.
Third, the big tech stocks — Apple, Amazon, Google and the like — continue to drive most of this.
The mid-month plunge was largely them going down, and they also drove the recovery.
Apple went sideways, but as a trillion-dollar stock it was a very solid sideways.
They all remain at very high valuations which essentially discount all of the three major negatives which hang over the world economy and global financial markets.
These are the prospect — the certainty, especially after another stellar jobs report overnight Friday — of higher US interest rates; the risk of an escalating trade war between the US and China; and a consequential major slowing in the world’s two biggest and most important economies.
Just for comparison, the US jobless rate is now down to an unbelievable 3.7 per cent — black, Latino and other minority jobless has never been lower; and they are all starting to see solid wage rises.
In comparison, our jobless rate is down to 5 per cent — we are actually doing very well, but we haven’t seen wages stir yet.
That’s why while US rates are going up — with the next move in December absent some global shock — ours aren’t going anywhere anytime soon and absolutely not on Tuesday.
I would suggest investors are getting some things right, if for the wrong reasons; and other things spectacularly — overconfidently — wrong, with every now and then reality breaking through. Hence the volatility. Asia was right to be optimistic on Friday … China and the US are not going to go to war — over trade, that is.
President Trump is a negotiator — like, one should add, we have never, very uncomfortably, seen before.
He also, it is very important to appreciate, sees success in financial terms.
He follows the ups and downs of the stock market like a hawk; and certainly like no president before him.
That’s why he’s megaannoyed by Fed head Jerome Powell putting up interest rates, but Powell is going to keep doing it and Trump is going to continue to get megaannoyed.
That’s also why Trump is mega-pleased to see the Shanghai market going down — it’s his sign of success, while Wall St going down would be a sign of failure.
So, we are going to get continuing volatility driven by trade rhetoric and rate moves.
President’s Trump’s move to reimpose sanctions on Iran shows trade isn’t always only about money for him.
All this adds up to a very confused environment.
Investors are not factoring in the negative impact of continually rising rates in the US in 2019, but at the same time, they are overreacting to the trade rhetoric.
This plays out in exaggerated gaps down when the trade issue boils over; while Wall St then springs back too firmly when they recede.
At least they are getting the volatility “right”, but not the underlying trend, which to me will prove negative over 2019.
So far as our local market is concerned, you need to factor all that as the base and then add on our own special drivers — what’s happening in our economy and so, interest rates; and the mix of local stocks.
We will continue to be — reluctantly — dragged up by Wall St and whacked when it goes down.
A stocks display board in Hong Kong shows an increase in the Hang Seng Index.