February 9th 2018 Market Minute
Let’s start with a little January 2018 information on some of the Equity markets around the world.
The Australian Equity Market, (All Ordinaries) hit it’s highest level (6254) since 2007/2008 on Monday January 9th 2018. By the close Monday January 22nd it was down -2.16% from this high.
The New Zealand Equity Market, (NZX) hit an all time high of (8,455) on Friday January 5th 2018. By Monday January 15th it was down -2.89% from this all time high.
The British Equity Market (FTSE) hit an all time high (7,778) on Friday January 12th. A couple weeks later, by the close of Thursday January 25th it was down -2.1% from this high.
The French Equity Market (CAC 40) hit its highest level since 2007/2008 on Monday January 22nd.
The Japanese Equity Market (Nikkei) hit its highest level (24,219) since 1990/1991 on Tuesday January 23, 2018. For the week, however, it was down -.70%.
The German Equity Market (DAX) hit an all time high (13, 559) on Tuesday January 23, 2018. It dropped -1.07% on Wednesday. Another -.86 on Thursday January 25th.
The Dow Jones Industrial Average hit an all time high (26, 661) on Friday January 26th.
10 and 30 year US Treasury Interest Rates continued to climb both prior to January 26 and after, despite the ‘corrections’ we have experienced in the equity markets. Though higher, rates have not exceeded highs from 2013.
On Thursday January 25th Gold hit it’s highest level since August 2016. Since then it has ‘trended’ lower.
Taking in to account the above information with or without looking at their corresponding charts, I think the ‘volatility’ in the equity markets around the world we are experiencing did not start after the US Equity Markets hit all time highs on January 26th.
‘Something’ changed before then, it just took a while for the US to experience it. All other equity markets in the world are a fraction of the size of the US Equity Markets. Thus flows leaving stocks may have a greater impact there than they may here in the US. Especially when the Economic Fundamentals in the US are looking better, not worse.
Some are saying it’s interest rates going up. Inflation concerns?
I disagree that inflation concerns are causing this. Interest rates going up may cause it, but if it is the source it is not the impact of rising US Interest rates on the US Economy but instead the impact on some other area of the world. After all, the volatility started before January 26th.
Do not underestimate the impact on the rest of the world of the US raising interest rates. Especially it’s impact on China, the second largest economy in the world. Whom still, despite the impossibility of it, still has their currency, (RMB/Yuan), ‘pegged’ to the US dollar and has significant capital controls on it’s currency too.
Once the US Equity Market, (the largest, most liquid, most leverage-able, most transparent, most creative, equity market in the world), gets involved the feedback loop to the rest of the worlds equity markets could be extreme. And now, vice-versa.
So like everyone else out there I do not know what has changed to cause the equity markets around the world to act like they have recently, but it did not start and was not originated here in the US. Now that it is here it is not going to go away until we in the US ‘figure’ it out in our Equity and Fixed Income Markets. If, it can be ‘figured out’, at all.
Source: Wall Street Journal, Thompson One Financial
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