Markets and the Machine

Yang, Odell and Kostner Articles

Like that stereotypical flight scene from a Hollywood action movie, we are now finding ourselves in a cockpit of a Boeing 737 Max 8 with many warning signs flashing red and all indicators pointing the nose down to a steep descent. Yet the best of us are struggling to regain control in the hope that we can manage a safe landing. With the oscillating hullabaloo & conflicting signals in the global economy right now – this is how we feel about the world’s major markets.

Eurozone Nightmare

Quite apart from the collective European shock of the Notre Dame Cathedral in Paris almost burning to the ground; If we are to map the economic state of the Eurozone on a car’s dashboard – most indicators are not looking good. Watch out for Italy! The Italian debt to GDP ratio is heating up and is set to rise from 132.1% in 2018 to 134.4% this year – with no apparent signs of improvement. All this, despite the ECB’s Quantitative Easing efforts to temper an Italian economic fallout, bond spreads continue to widen indicating that Italy is very close to default. On the contrary, what the ECB’s program of QE has done from 2012 to 2018 was inflate asset prices – from property, stocks, and bonds that have benefitted those who have, rather than assist those who have-not.

Another indicator in the red is European productivity, which is showing signs of a steep decline. Manufacturing for one has been on a downward slope over the last six months. We can surmise of three reasons why Europe is not producing as much as it used to. First, China’s economy is slowing with official forecasts for growth lowered to 6% from the usual 8% impacting demand and orders from European manufacturers. Second, Europe’s automotive industry - which is principally the backbone of manufacturing and includes not just Germany, France and Italy are currently experiencing disruptive developments as cars are shifting from petrol/diesel to electrification. Third, C-level leaders [CEO/COO/CFO and CTO] are losing their collective vision and becoming more pessimistic, especially in Germany – and Brexit is providing more confusion than direction.

American Throttle

The world has always looked to America for direction. But even the US itself seems to get lost in confusion and misdirection. The Fed under Jerome Powell was supposed to stand its ground to teach the market that it can't go on with its excesses and was supposed to nip market unsustainability in the bud. So, whatever happened to the Quantitative Tightening (QT) it announced in the autumn of 2018? Obviously, the Fed ‘bottled’ their plans and allowed the markets to further overheat with no interest rate increases in sight. It is a monetary policy that shills Trump and has made Powell a co-conspirator in conjuring a buoyant stock market that is healthy and vibrant when it is not.

Australian Housing

It’s a seller's market in Australia – with home prices falling since 2017. This means one thing, Australians are not buying houses and explains why sellers are disposing of them fast, even at bargain prices. Business Insider Australia suspects that this trend will last for a while with most Australians downsizing and no impetus to recover in sight. Even if the Royal Bank of Australia cuts rates, it will have no significant effect on the Australian retail markets.

Indian Flair

Economist and analysts look to India as an emerging economic superpower that can (or even maybe) overtake China. This comes at the heels of the IMF’s own forecast that India will grow at an average of 7% while China decelerates to 6.3%. This has been supported by a low-interest rate environment as the Reserve Bank of India cut rates from 6.25% to 6% and may reduce them further.

If central bankers are pilots maneuvering the global economy, we are in for a rough ride ahead. Most indicators on the dashboard of the cockpit point to turbulence ahead and passengers are requested to fasten their seatbelts. The global economy might head towards the same fate as those Boeing 737 Max 8s and let us pray that Frances Iconic symbol, the Cathedral at its heart is not portentous of worse to come.