When fear overshadows greed

If I had also predicted that a slowdown in the US would be affecting global markets then I really would have had something to crow about, but at the time the US seemed to be powering ahead and moving back to some form of economic normality.

 

Nevertheless, the continuing weakness of our biggest trading partners was always going to have the potential to affect our recovery and the fear has overtaken the greed in the worlds’ stock markets and the indices have tumbled over the last week.

 

All this has moved the pendulum back towards interest rate rises being further into the future and the longer the low interest environment goes on the more it feels like a normal interest rate and the more confusing economic predictions become.

 

Let’s illustrate that with a quote from Andy Haldane in the Daily Telegraph, one member of the Monetary Policy Committee who said the UK economy was "writhing in both agony and ecstasy" with strong growth, low inflation and high employment being tempered by weak wage growth and productivity.” Adding “This has been a jobs-rich, but pay-poor, recovery," (source The Daily Telegraph).

 

All this has made him “gloomier” and maybe the Bank of England have been unlucky, but all the forward guidance over the preceding months seems to have left people more confused than they were already.

 

The constant briefings have oscillated from a rate increase being brought forward due to stronger figures in one part of the economy one month to rates being on hold as a different piece of economic data comes in weaker than expected.

 

According to market commentators the current weakness in the markets is due to a combination of worries over Europe, US economic data, the Ebola crisis, deflation threats and “general nervousness”.

 

OK, Ebola is a newer issue and I am not sure that “general nervousness” is really a technical explanation for price movements, but I think that the slowdown in the US is the real issue that has knocked investor’s confidence and when people move into the bearish mindset everything becomes an excuse to sell.

 

In the midst of all of this, Sterling has also been moving lower as the markets factor in the base rate being on hold for longer, though there is a degree of volatility here as the markets react to the news, both good and bad, from the respective national economies.

 

It seems to me that there is not a great deal of new problems coming forth, but really just a re-focus on the problems that have always been bubbling along underneath the surface of recent economic recovery.

 

However, to finish on a positive note I do believe that things are getting better, but we may experience a few more ‘three steps forward, two steps back’ moments.