Global policy uncertainty has never been higher...
And the world is erupting in mass protests: Chile, Ecuador, Lebanon, Barcelona, France, London, Puerto Rico, Hong Kong, Iraq, Guinea, Bolivia, Algeria, Haiti, Egypt, Pakistan, Brazil, Sudan, and today, Azerbaijan.
Both of which are among the reasons why former fund manager and FX trader Richard Breslow warns that markets are, as they have become used to being, too sanguine in the face of chaos.
Nothing bad has happened in the markets so far today. In fact, they look mostly benign and calm. Although it was a little dicey at the beginning. And we’ll have to see how earning reports go. With the bulk of the news on the week’s calendar yet to come, it makes some sense that the net changes in asset prices have settled back down to not very much changed. Yet, looking through my in-box, if there is one word to describe the general mood, it’s “blah.”
Bond yields stalled where they, perhaps, should have, but that’s no fun. For the most part, global equities haven’t done anything particularly wrong. Yet, they appear at risk of threatening to squander the hard work they put in toward mounting a renewed push to the upside. Currency trading has had its momentum sucked out of it. Commodities look like they simply can’t come to a decision about the prospects for future demand, regardless of the news.
Traders have, time and time again, been remarkably willing to accept kicking the can down the road as a net positive. The status quo, with dovish central banks thrown into the mix, worked just fine for them. But, it just might be the case that patience is showing evidence of wearing thin. There is a vibe in the air that enough is enough already. It will be interesting to see if this is a passing phenomenon or will become a more enduring malaise. Given the fickle behavior of markets, however, it’s a risk to overstate the meaningfulness of one day’s emails. But worth keeping an eye on. Particularly with so many self-inflicted wounds weighing on things.
Dysfunction, however, will ultimately have its limits. Especially with the world’s economic growth forecasts continuing to be serially downgraded. The IMF just added Asia to the list. At 5% for 2019, it will be at the slowest growth since the financial crisis. Traders have been willing to stay bullish on a lot of assets, including many emerging markets. Despite the limits of monetary policy being gradually accepted. And proper fiscal policy mostly a no-show.
But the scenes of massive, and in many cases violent, protests taking place all over the globe might finally expose how tenuous is the interconnectedness of the real economy and the level of financial conditions indexes. A lot of people are just tired of waiting for better, and more equally distributed, economic results. And sense their time might not be coming. These emotions are infectious and this has definitely not been business as usual.
Hong Kong stocks were down today. Trade, the property sector, impatience over additional measures from Beijing to shore up the economy and a technical correction were all cited. But I was struck by those who argued that the possibility of Chief Executive Carrie Lam being replaced, next March no less, was the cause as it could “hurt confidence” and increase uncertainty.
The current reality for many places in the world, and challenge for traders, is that the citizenry decides that those two possibilities become more and more the outcome sought.
I wonder if a popular download will increasingly be the movie “Network”.