Early autumn 2018 has seen equity markets stumble especially those stellar performing ‘tech’ stocks including the FAANGs (September 2018 blog) giving back some of their gains. The bull market long touted about its demise has now suffered the consequences of rising fear factors which have concerned international investors. Rising US interest rates, margins peaking due to wages rises and inflationary costs such as rising oil prices and the tailing of the quantitative easing programmes from the US Federal Reserve and the ECB all have added to investors’ woes.
However, there’s nothing like political and social upheaval to make for a seemingly febrile atmosphere in and between many of the world’s largest trading or politically important countries. This includes the US and China, Russia, Turkey, and Saudi Arabia. The continuing horrors of conflicts in Yemen and Syria remain costly in lives and misery with regional powers all vying for influence such as the Saudis, Iranians with Turkey looking for leverage too regarding the Kurds.
The brutal murder of Saudi journalist Jamal Khashoggi has the world order under further duress with Turkey key to events as they release unpleasant details Saudi official may not like. The Saudis are shaping events to suit a narrative to limit damage to the regime. This could result in the Crown Prince’s rising power being curbed and allowing other factions to regroup against his influence. More widely will this cause a rethink of political and trading links with the regime particularly with military contracts to the Kingdom?
A sceptical view is not really as any sanctions or embargoes would cause repercussions for western military manufacturers at a time of slowing trade and may affect the outcome of key struggles in the region.
In the months ahead the US has both political and diplomatic minefields to negotiate as it supports the Saudi regime, with President Trump’s first foreign visit in mind, criticising and curbing Saudi activities while seeking arms contracts doesn’t make for easy diplomacy. The UK has similar issues in this region.
The rise of populist sentiment and anti-globalisation tendencies among voting nations and the election of populist, if not indeed, dictatorial leaders from the Americas, Europe to Asian countries portrays a change in world perceptions from recent decades with the 1990’s democratic dividend seemingly lessening.
Furthermore, the US administration has to confront yet another mass shooting this time in a synagogue in Pittsburgh in conjunction with a lone wolf Trump supporting bomber from Florida sending homemade devices to politicians critical to Trump who thankfully was caught before anyone got harmed. Incidents like these highlight the bitter divisions in the US political system which is still boiling over the Supreme Court nominations of Brett Kavanaugh, the Russian election collusion and a worsening trade spat with China with tariffs in response to Chinese dumping of goods or excessive state aid.
The threats to global trade which have spooked investors as companies’ supply chains become threatened with shipping delays and regulatory impositions which impacts on their deliver, input costs thus profits. Some domestic US suppliers aren’t too worried yet still lend business support for the Trump’s trade policies. For how long they remain loyal remains to be seen?
Do these global events and entanglements reveal the opening sores of the global elites, with their powerful corporations and professional class flunkies contrasted against more homespun companies and local voters most uneasy about job losses and immigration whether in the US mid-West or the non-London counties of the UK?
This issue is gathering momentum and discussion is wide and varied with many writers and social commentators in the world’s press debating and anticipating a new conflict ridden world order. How dangerous is the paradox to which everyone is guessing as the world has been full of conflict before and progress continues with adversity.
Whether a New Cold War with China has indeed begun as US vice-president Pence commented recently this maybe only a projection or effect of the wider class war that has emerged in the US, Europe and around the world in places like Brazil. The exercising of undemocratic liberalism or illiberal democracy has created the opportunity for populist or dictatorial politicians to play to the fears of their electorate and create this more zero sum mentality- it seems success of the liberalism has worked against itself as it slips back to a more authoritarian mode.
In the UK’s Brexit tribulations continue to vex its population with marches held in favour of yet another,” people’s” referendum as the details of an exit deal still appear out of reach with the 29th March 2019 departure date looming. The Conservatives government provided an upbeat budget with more money than thought from tax receipts as previously estimated by the Office of Budget Responsibility. Further funds were made for the NHS and they claimed austerity was nearing its end arguably as the Labour opposition would have it.
Companies and markets have been resilient over these intra-national or international political issues for a long time but the jitters have certainly appeared from October 2018. A market rally up to Christmas could easily yet happen as bargain hunters seek value. However the issues arisen that require resolution from populist leaders with angry voters are a devil’s brew with compromise difficult to find. However away must be found- cool heads and steely nerves- required all round from investors, voters and politicians for year’s end 2018 and beyond.
LDC.