Markets: The global markets are turning. Monday saw a widespread sell-off across asset classes as green shoots were mowed down. As so often, it was not entirely clear what started the rout. Falling copper prices, a World Bank report questioning global growth, talk of currency trouble out east in Belarus were all possible triggers. But the results were plain to see. Equities, oil and other commodities were hit brutally, as well as recent market darlings such as the Australian dollar and the Brazilian real. The US dollar muscled in like a new enforcer.
Green shoots may have given way to a bloody and more realistic phase in global markets. The copper fall was important because it suggested some green shoots were Emperor’s new clothes. China has been stockpiling copper, whose global price, having rocketed 60 per cent in eight months, has begun to slip.
One rumour has it that Chinese stockpiles are fully loaded; another that China has turned seller. The evidence is that Chinese and global growth aren’t strong enough to support the metal’s soaring price. The World Bank may therefore have been an accessory to the market massacre by cutting its global growth forecast to -2.9 per cent this year, from -1.7 per cent previously.
The US’s S&P 500 fell by 3.1 per cent as global equities followed oil, down 3.7 per cent, and copper, down 5 per cent, on Monday. All have shared similar trajectories, reaching approximate half-year highs after a bull run that has been astonishingly rapid since equities bottomed in March. The upturn has occurred despite global recession. Perceived green shoots and stimulus reality propelled the rally.
But now the hopes and the stimulus are being questioned. Wednesday will be important. The US Federal Reserve is expected to confirm the markets’ broad expectation that it does not plan to print yet more money. There may even be Fed intimations of an ‘exit strategy’ from stimulus. Less money printing should be good for the dollar – but is potentially very bad for commodities, currencies and equities that have scampered ahead on pumped cash, a frail dollar and reflationary hopes.
Meanwhile, central bankers are warning governments about fiscal stimulus, which has gone over its limit in the US and the UK. That leaves the markets to reassess a world showing only meagre signs of economic recovery but with prices that have leaped ahead in just months. The risk is that Monday’s shoot-out is the first of many until more rational levels are reached. After the merry months, the forensics could be kept busy for a while.
