“Rise, like lions after slumber/ In unvanquishable number! /Shake your chains to earth like dew/ Which in sleep had fallen on you:/ Ye are many—they are few!”
The closing lines of Shelley’s The Masque of Anarchy helped to turn Manchester’s Peterloo Massacre, which took place 200 years ago last Friday, into a rallying cry to give working class men the vote. In the immediate aftermath, however, the government ordered the courts and police to chase down journalists seeking to report on the event.
History, Mark Twain said, doesn’t repeat itself, but it does rhyme; Peterloo may stand alone as an event, but the war over elections and the media is alive and well. Last week, police in Moscow attacked (and then detained) demonstrators whose candidates have been barred from standing in elections; Chinese state media showed ominous footage of military manoeuvres near the Hong Kong border; and India continued its media blackout in Kashmir.
Investors largely deemed such events of only passing relevance to corporate outlooks. India’s SENSEX index rose last week; Russian stocks are on a flyer this year, currently up more than 20%; and Hong Kong stocks, while they have been falling in price, are enjoying a rush of inflows from mainland Chinese investors – the longest such streak since 2018 (although yuan weakness may be part of the reason).
Investors globally, however, were more interested in growth and trade troubles. The S&P 500, Nasdaq, FTSE 100, EURO STOXX 50 and Japan’s TOPIX all slipped over the course of the trading week, and several of the major indices suffered their worst trading day of 2019; the three leading US indices fell by 3% on Wednesday.
J.P. Morgan said last week that the next rounds of US tariffs – due in September and December – will test China’s capacity to keep growth from slipping into a lower gear. Last week, the White House indicated around half the September tariffs package could be deferred; then the US president warned that troubles in Hong Kong would impact the outcome of trade talks; and China said it would introduce retaliatory tariffs when the next round of US sanctions are introduced on 1 September. Markets duly rose and dipped in response. Meanwhile, South Korea removed Japan from its list of trusted trading partners (pushing down South Korea’s won to an 8% dip versus the dollar this year); and North Korea conducted further missile tests.
Such tensions over trade and security might have been just about manageable for investors, were it not for the fact that the global economy is delivering ever more signs that it needs all the help it can get – not least among some of the world’s leading exporters. Last week, July industrial output data for
China, the world’s largest exporter, came in at just 4.8% (annualised), its slowest rate in 17 years; fixed investment, housing starts, credit growth and retail sales all show signs of losing momentum, too.
Meanwhile, in Germany, the world’s third-largest exporter (and its leading car exporter – see chart below), GDP shrank by 0.1% in the second quarter. There are growing fears, and increasing numbers of forecasts, that the quarterly contraction will not prove to be a one-off; if Germany is tipping into recession, the implications for the eurozone more broadly could be severe. Moreover, Allianz Group argued last week that China faces a greater economic risk from an EU recession than from the US trade war. Finally, the results of an indicative vote in Argentina’s presidential election delivered the highest percentage to the – generally spendthrift – opposition. In response, the peso dipped by a quarter against the dollar and Argentinian stocks fell 37%.
Raw data should move investors more than trade threats and, sure enough, the news about China and Germany pushed down the yields on government bonds, as investors fled to safety. (Yields move inversely to prices.) Yields on ten-year US and UK government debt fell below the yields on short-term debt for the first time since the global financial crisis. Moreover, the yield on 30-year US government debt dipped below 2% for the first time in recorded history. Markets are now pricing in four interest rate cuts by the Federal Reserve over the coming 12 months. (The White House is also looking at offering its own helping hand in the form of further tax cuts.)
Amid all these headwinds, there was still a handful of earnings results to celebrate, not least for Walmart, Alibaba, Nvidia and Tencent; although Macy’s, Deere & Company, and JCPenney offered less happy news. Perhaps above all, however, bank stocks are getting a rough ride, shedding value on global markets as growth stalls and interest rate cuts proliferate. By some definitions, US bank stocks are now in a bear market.
The risk-off mood comes at a sensitive time for the UK, its future currently suspended in aspic while parliament is in recess. However, domestic politics was more than lively last week, culminating in Jeremy Corbyn’s offer to head up a temporary alternative government – by way of coalition following a no-confidence vote in the current administration. (Corbyn said the new administration would then block a no-deal Brexit and quickly call a general election.) With varying degrees of reluctance, leaders of anti-Brexit parties left the door ajar for the possibility, should it prove necessary; although he looks set to struggle to get the numbers he would need.
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