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A month long global market rally may have been snuffed out. Here’s why

Infinox Contributor
Markets Stabilise After Turbulence Last Week
What do businesses and markets crave? It’s a simple enough question with a simple enough answer. (Source: Getty)

What do businesses and markets crave? It’s a simple enough question with a simple enough answer.

For the most part they crave hospitable, politically stable environments in which to trade, and low tax regimes that incentivise entrepreneurialism and facilitate profit growth.

But at the moment, in different parts of the world, all of these things are under threat — and markets are under the cosh as a result.

Having recently hit a new record high, the Dow Jones fell 101 points last Thursday in response to the news that the White House’s policy proposal to lower corporation tax to 20 per cent from its current level of 35 per cent, among a raft of tax policy changes, could be delayed until 2019. It’s current 200 points down on where it was at the start of trading that day.

Likewise, markets across Asia, and in particular Japan, fell by more than 1 per cent on Monday after US President Trump got into yet another war of words on Twitter with North Korean leader Kim Jong-Un on Sunday, making for an awkward end to what had otherwise appeared to be a relatively successful tour of Asia.

And then in Europe, we had the prospect of British Prime Minister Theresa May being ousted by her own party following revelations that 40 of her MPs lack confidence in her leadership — only eight MPs short of triggering a leadership election within her party and almost certainly another general election.

Meanwhile, a delegation of European and British businesses arrived at Downing Street on Monday to beg the Prime Minister to begin to make progress on Brexit for the sake of all the major European economies, warning that contingency plans would have to be activated as early as March if sufficient movement on trade talks has not materialised.

Little wonder Sterling fell more than 0.6 per cent against the Dollar and the Euro or that the main European markets fell as the prospect of Brexit dragging on added to anxiety over yet more politico-economic uncertainty in a region that has experienced more than its fair share since 2008.

When there is political stability markets invariably do well. The second half of October proved that in particular with markets around the world hitting new record highs, partly in response to strong corporate earnings but also due to a brief period of political calm.

To say that global sentiment is now turning negative because politics has turned less certain and less stable that it had appeared for the several weeks before might be an overstatement. But at the same time, is shows just how much they crave certainty and it’s worth asking just how much longer markets can hold onto recent gains in the face of such fiscal and political uncertainty.

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