The stock market, crises and us.
The European summit on Wednesday was afraid of a no-deal outcome, the impossibility of getting Brexit back on track to a respectable and respected agreement. Europe has wobbled in recent weeks, with the budget presented by Italy frightening Brussels and breeding doubt in the European Parliament. Curiously, the Paris stock exchange is looking healthier, rebounding 1.53% on Tuesday. The reason for this is simple, if paradoxical.
Le Figaro Economie seeks to shed light on the causes of this improvement: “Investors are putting aside political uncertainties to focus on initial US business results, which are stronger than expected.” The CAC 40 has thus taken an upwards path and stepped up the pace in the wake of Wall Street’s positive opening. “The rebound expected for several days now has finally occurred, leading to an overall rise,” said Daniel Larrouturou, Deputy CEO of Diamant Bleu Gestion, talking to AFP. In one sense, he said that “the absence of bad news is a good thing in itself in this difficult environment”. But most importantly, he said the upswing was driven by “the start of the earnings report season in the United States, which has kicked off with stronger than expected performances – in particular by Goldman Sachs and Morgan Stanley – that are encouraging investors to resume their positions somewhat”.
Le Figaro adds: “Goldman Sachs has fulfilled hopes with a 20.5% increase in net profit in the third quarter, with revenue generated by senior bankers having offset the stagnation in brokerage revenue. Meanwhile, Morgan Stanley reported a near 20% rise in quarterly net profit, owing primarily to robust brokerage business.”
Against this backdrop, political uncertainties over the Italian budget, Brexit negotiations and geopolitical tensions between Riyadh and Washington following the disappearance of Saudi journalist Jamal Khashoggi appear to have faded into the background. This is a perfect example of investor realpolitik, paying mind to actual achievements, acknowledging good economic results and not tarnishing performance with political considerations.
Le Figaro pursues its analysis of the European situation as follows: “In terms of indicators, according to the ZEW survey, the morale of German investors collapsed in October amid exacerbated trade tensions.
The eurozone reported a trade surplus of €11.7 billion in August, down year on year.
Lastly, as analysts expected, industrial production continued to increase in September in the United States.” The stock market, crises and us! Current world growth looks set to continue next year, but economists are concerned about what will happen the year after. Some of them are talking about a global recession. For now, China is implementing more flexible credit policies, the United States is taking on heavy budget deficits and Europe is posting a decent recovery. But the financial daily Les Echos posits the following hypothesis: “Between now and 2020 conditions will tend towards a financial crisis followed by a global recession. This can be explained by several reasons. The budget stimulus plans currently lifting annual growth in the USA above its potential of 2% are not sustainable. By 2020, the stimulus will have run out of steam. The question then will be the inexorable rise in interest rates. And as the timing of the stimulus measures is inappropriate, the US economy is currently overheating and inflation exceeding the target. The US Federal Reserve is expected to continue increasing the Fed Fund target rate, from 2% today to at least 3.5% by 2020, which in all likelihood will increase interest rates in the short and long term, together with the US dollar.” These projections are considered as certainties by some observers. And so we have two years ahead of us to keep these unfortunate predictions from coming true.