Macroscope | Global markets are plunging from a toxic mix of factors that created the perfect storm for meltdowns
- The OECD has noted that new orders for capital equipment slowed with trade growth, which will show up in corporate earnings
The reason stock markets plunged around the world last week is that greed has now turned to fear, as a toxic combination of over-extended equity valuations, rising interest rates, historically high debt levels, trade and currency wars - and now fear itself - began to feed upon themselves. Such feeding frenzies do not end well.
There is another element in the pernicious cocktail that is often overlooked. Once markets stop rising, they fall - farther and faster than most people expect. This should be as obvious as the law of gravity, but it often isn’t, until it is too late to prevent a crash.
The MSCI Asia-Pacific index has now fallen by 20 per cent from its peak at the end of January, while the US Dow Jones index has given up all its gains this year and Britain’s FTSE 100 hit a seven-month low this week.
The causes of the crash are said to include the clash with Saudi Arabia over journalist Jamal Khashoggi’s cold- blooded murder, the (perennial) Italian crisis and Brexit.
No doubt, Donald Trump will heap all the blame on the US Federal Reserve rather than his own policies.