August angst rattles stocks

Global stockmarkets remained volatile after Black Monday, which saw some of the nastiest daily falls since the global financial crisis.

757_shanghai-634

Global stockmarkets remained volatile after Black Monday, which saw some of the nastiest daily falls since the global financial crisis. On Tuesday, China's central bank, the People's Bank of China, tried to cheer investors by adding liquidity to the system. It cut interest rates for the fifth time in nine months and further reduced the Reserve Requirement Ratio (RRR), the amount of cash banks must set aside rather than lend out. But the move failed to halt another decline on Wednesday, when the Shanghai Composite Index fell by 1.3%. That sealed the worst five-day fall since 1996, and unsettled European markets again.

The turmoil has prompted many investors to put back their expectations of a US interest rate hike. Barclays, for instance, now reckons the first hike in almost a decade will come in March 2016, not next month. Ray Dalio, head of Bridgewater, a $200bn hedge fund group, said the US Federal Reserve would now ease monetary policy, restarting quantitative easing (QE), or money-printing, instead of tightening.

What the commentators said

Far less encouraging, however, is the apparent return of the "Greenspan put" to the US, said James Saft on Reuters: the belief, nurtured by 1990s Fed chairman Alan Greenspan, that the central bank will always bail out markets by ensuring they have plenty of liquidity. Everyone is now saying they expect rates to stay on hold or even be cut, even though the economy looks healthy enough to cope.

This constant mollycoddling of investors encourages risk-taking and the formation of bubbles, continued Saft. "Silly people do silly things with money because they believe the Fed has their back." Putting off the downswing in a cycle risks a bigger collapse later. What's more, stocks are already historically overpriced, which means their long-term returns from these levels will be lousy. It's time the Fed allowed investors to grow up and make their own mistakes.

Recommended

UK inflation slides to 8.7% - what does it mean for your money?
Economy

UK inflation slides to 8.7% - what does it mean for your money?

Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your…
24 May 2023
Why the UK equity market is shrinking
Economy

Why the UK equity market is shrinking

The crisis has been building for 25 years, says Max King, and it will take decades to reverse the trend.
18 May 2023
How inflation is hitting you in the pocket
Economy

How inflation is hitting you in the pocket

Our money has been debased for decades. The blame lies with the advent of fiat money, says Dominic Frisby.
11 May 2023
NIESR: ‘Squeezed’ middle class households now £2,560 a year worse off
Economy

NIESR: ‘Squeezed’ middle class households now £2,560 a year worse off

Britain will feel like it’s in recession even if it isn't after a significant drop in middle-class income - and the poorest households are even worse …
11 May 2023

Most Popular

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?
Savings

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?

Two fortunate NS&I Premium Bond winners are now millionaires. Find out here if you’re one of them.
1 Jun 2023
Housing slowdown ‘deeper than anticipated’ as property sales slump
House prices

Housing slowdown ‘deeper than anticipated’ as property sales slump

New data from HMRC shows a fall in property sales - now experts predict a delay to the housing recovery
1 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
2 Jun 2023