The Federal Reserve’s recent decision to halt plans for rate hikes may be just one indicator of a downturn in the global markets. The Fed has already indicated it’s taking a “wait and see” position on the economy before raising rates and cutting back the US money supply. And across the world, recent developments in the financial sector may have proved the Fed’s caution to be the right move.
Global stock averages under the MSCI, a 47-country stock index, are set to break a six-week streak of gains, a rather abrupt reversal after so long without any signs of bearish movement. Yesterday, after a four-month peak, MSCI’s Asian sector markets fell a half a percent, reports Reuters. The Bank of England announced its lowest economic growth in a decade after attempting its own gradual rate hikes, a move that spooked domestic investors.
But stocks aren’t the only markets taking a hit. Government bonds and treasuries are also faring poorly as of late. Yesterday, the 10-year US Treasury bond hit a weekly low, the 20-year Japanese bond is at a monthly low, and the 10-year German bund (bond) has hit its lowest point since November, 2016.
It’s almost certain that part of the financial tension in international markets has to do with ill will between two of the world’s most powerful economies: the US and China. The mounting trade war between the two nations has shown no signs of resolution in the near future, as President Trump recently announced his administration has no plans to meet with Chinese President Xi Jinping until US tariffs take full effect next month. Without the catalyzing effect of free flowing trade between the US and China, global economies tend to follow suit in times of reversal, and at the very least, the tensions have done nothing to strengthen international markets.
When asked by Reuters for comment, Michael Hewson, chief markets analyst at London-based financial derivatives dealer CMC Markets summarized,
“If there was a single takeaway from the last few days it would appear to be this – ever since the Fed started to backtrack on its growth expectations for the U.S. economy, the global economic skies, to coin an aphorism from the recent World Bank report, have started to darken further.”