BLOG: 12 FEBRUARY 2016
QUESTION OF THE WEEK - WHY ARE THE MARKETS IN TURMOIL?
It’s clear to most that the markets are in turmoil, with the facts speaking for themselves – out of the 21 major global stock markets, an astonishing 19 of them are down on the same period last year. So, the questions looms: why is this happening?
It comes down to a plethora of reasons, from economic fundamentals and brute market forces, to market emotions as investors follow each other like sheep down a negative spiral. America, China and the European Union, the engines of global growth as some may say, are the main watch point for any real signs of turbulence, and unfortunately, each of these vital engines have had their share of issues.
Recently, the chairwoman of the Federal Reserve revealed that it seems the global economy is “less supportive” of US growth, adding to the overall feeling being that 2016 may be a year dominated by the sellers not the buyers. Across the globe in China, things seem to be no better, with economic concerns stemming from increasing market and currency volatility. Finally, the Eurozone shows no sign of relief either, with industrial production in 3 of its major economies down. Not only this, but after the 2012 Eurozone crisis seeing markets fall into a loop of concerns that the whole European project could fall apart, enthusiasm returned when the impending nightmare actually failed to materialise.
Mario Draghi, the European Central Bank Governor, has now introduced negative interest rates with the hope of encouraging banks to invest rather than storing their money away. However, it is questionable how effective this method may be, after the Japanese Central Bank implemented the same negative interest rates.
It comes down to a plethora of reasons, from economic fundamentals and brute market forces, to market emotions as investors follow each other like sheep down a negative spiral. America, China and the European Union, the engines of global growth as some may say, are the main watch point for any real signs of turbulence, and unfortunately, each of these vital engines have had their share of issues.
Recently, the chairwoman of the Federal Reserve revealed that it seems the global economy is “less supportive” of US growth, adding to the overall feeling being that 2016 may be a year dominated by the sellers not the buyers. Across the globe in China, things seem to be no better, with economic concerns stemming from increasing market and currency volatility. Finally, the Eurozone shows no sign of relief either, with industrial production in 3 of its major economies down. Not only this, but after the 2012 Eurozone crisis seeing markets fall into a loop of concerns that the whole European project could fall apart, enthusiasm returned when the impending nightmare actually failed to materialise.
Mario Draghi, the European Central Bank Governor, has now introduced negative interest rates with the hope of encouraging banks to invest rather than storing their money away. However, it is questionable how effective this method may be, after the Japanese Central Bank implemented the same negative interest rates.
