It has been a singularly eventful August that has just drawn to a close. We’ve seen the markets go up and down constantly, as if hit by a storm.
So, what happened?
Let's start with what’s closest to us: Italy
The crisis in Italian government, the looming spectre of early elections (only a year and a half after those of 2018), and the creation of the new majority, did not go unnoticed by the markets. Rather, not a single jolt was missed.
At the beginning of the month, when the crisis broke out, it seemed like the stock exchanges had gone crazy. In just a few hours the spread increased by 30 points and the stock market went into freefall: burning 15 billion in less than a day. Then, in another twist, things took yet another turn, as today it seems that things have come together to give life to a second "Conte" Government.
It’s a political solution that the markets seemed to appreciate. So much so that they immediately regained oxygen and colour (with the spread falling to 163 points and the stock market rising sharply).
We'll see what happens next.
The rest of the world: there’s no trust, but there is growth
As for the American, Asian and European stock exchanges, two things are worth mentioning. The first, is that things are going very well. The second, is that despite the good results, caution is not yet being thrown to the wind.
In this sense, it's interesting to read on CBSNews that this has been the best "first half of the year for U.S. stocks since the dawn of the dotcom boom 22 years ago". Similarly, the Dax 30 in Frankfurt and Cac 40 in Paris have also risen. And, overall, according to the Global Investment Report, there were more investments made globally in the first half of 2019 than in the same period in 2018. In fact, "Compared with the first half of 2018, the numbers of investments in consumer and real estate have increased by more than 50%, and the numbers of investments in enterprise services, financial services and logistics have increased by more than 10%."
Great, isn't it?
As has already been explained in the course of other monthly digests, the cut in rates and the introduction of quantitative easing are by their very nature ambiguous signals. On the one hand they are an expansive measure, because they favor growth and stability and because they introduce liquidity into the economy. On the other hand, however, they are a prudential measure, because they are designed to protect the markets from potential future crises.
Three things to keep an eye on
- The duty swing
The trade war with China, between one thing and another, has been going on for a year. The results are being felt and have been severe both in terms of industrial results (especially as regards to tech) and in terms of stock market results.
At the beginning of August it seemed that a turning point had been reached and that the American president Donald Trump was ready to let go and open dialogue. His olive branch, however, lasted only a few hours, and the next day a new list of Chinese goods was ready to be traded in America with yet more steep tariffs. The stock exchanges felt the blow and made a big bounce: upward, at first, when it seemed that the trade war was drawing to a close, or at least to a truce, then down again (-3%) when it was understood that hostilities would not only continue, but were actually being intensified.
2. The Amazon issue
The green lungs of the world is on fire, bringing with it environmental consequences that many of us fear. However, the environment, though important, is not what we are focusing on here. Instead, we’re looking at the open climate of hostility, a direct result of said fires and related environmental policy, between the president of Brazil Jair Bolsonaro (who openly does not intend to protect the forest) and the rest of the G7, especially France. The fact that relations between Brazil and the rest of the most important economies in the world are damaged could have serious consequences on the stability of markets and trade.
3. The EU prepares a €100 billion fund to help its businesses
A €100 billion fund: that's what Ursula Von Der Leyen has in mind to support European companies against giants like Google, Apple and Alibaba. The proposal for a so-called European Fund for the future appears in an unusually radical series of plans that European Commission officials want to put on the agenda from next November. The measure could turn into dynamite (in the good sense) for European companies. Good luck!