No let up
If you look at the headlines coming from the financial press, you’d be forgiven to think the events of the last three trading sessions were the latest financial crisis. The truth is, at least for now, it isn’t. I certainly wouldn’t argue that the destruction in value within asset prices is negligible, but this isn’t a dot com bubble, a 2008, nor a 2020. If you wanted a historical comparison, the current souring of market sentiment most closely resembles the recession fears that garnered momentum in August last year and I guarantee most people have long since forgotten those. In FX, despite volatility abounding, the only definitive shift in value has been away from risk and the Dollar and towards, havens most notably the Swiss Franc and Japanese Yen.
That is equally not to suggest that Trump’s latest tariff episode doesn’t matter. They do. If tariffs are not unwound they will have a non-negligible impact upon growth too, particularly across Asia and the USA. Yesterday, US equity futures almost turned positive into the US open as rumours built that Trump was looking to delay the imposition of tariffs just as he had on Mexico and Canada at the 11th hour before. That ultimately did not happen, and Trump appears to remain resolved behind his current tariff plan despite reciprocity from China and condemnation from many business leaders at home and abroad.
As some of the dust settles between episodes of continuing volatility, it is clear that currently the risk the market is facing is one to growth. Note a risk to growth is not the same as a financial risk or systemic risk that has been known to perpetuate the kind of crises that many are keen to draw a parallel to at this time. Stocks are more sensitive to growth shocks than the wider economy. The stocks we see traded on bourses worldwide are companies whose fortunes are intrinsically linked to international demand and terms of trade. Their performance in this instance is not necessarily a good indicator of the kind of risk seen in other markets.
Discussion and Analysis by Charles Porter
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