Monday 22nd July 2019
China’s tech-focused equity exchange launches – and rockets!
This morning saw China launch Star Market, a science and tech-focused equity exchange in Shanghai. Investors sent share prices rocketing – the 25 stocks listed on Star had gained 140% on average by the time the market closed. Shares in Anji Microelectronics Technology soared as much as 520% before settling at 400%.
China hopes Star Market will help its high-tech companies access the wealth held by local investors, and also attract global leaders. After this spectacular first day of trading, the eyes of the world will be watching…
The summer of ‘69
Talking of aiming for the stars, 50 years ago last Saturday, Apollo 11 landed the first men on the moon. 1969 was quite a year – not only did Neil Armstrong utter those famous words, but The Beatles performed their last live concert on a rooftop in London, the first Concorde test flight took place, and Bryan Adams was, apparently, enjoying ‘the best days of my life’.
However, in stark contrast to the space mission ascending through the atmosphere, the Dow Jones Industrial Average was plummeting through it. This major slide proved to be a prelude to a tough 1970s for the world’s leading index of the time.
Oil and Iran back at the forefront of world markets
The 1970s energy crisis was a main driver for this decline – it culminated in the 1979 oil crisis when the Iranian Revolution led the price of oil to double. Last week, both oil and Iran were back on the minds of world markets, albeit in far less cataclysmic form. The US shot down an Iranian drone in the Strait of Hormuz, adding to US-Iranian tensions, and pushing up the price of a barrel of Brent crude by 1.5%, before Iran seized a UK tanker in the Strait of Hormuz.
Mixed earnings season in the US
Stock markets, however, were more sensitive to developments on firm ground, as corporate earnings season continued and central banks delivered their policy prognostications. Netflix suffered a 10% fall in its share price after reporting earnings far short of projections and the loss of 100,000 subscribers in the US – the company had been forecast to gain 300,000 new clients. BlackRock was another disappointment, as advice and securities lending revenues fell, while costs rose. Citigroup, J. P. Morgan and Wells Fargo reported drops in net interest margins, hurting profitability. There were highlights too, such as Microsoft and Blackstone, but fears remain that US equities may have been priced only for good news.
All the same, the S&P 500 hardly plummeted. In fact, the index ended the week only marginally down, and other major global indices generally ended flat or only marginally down too, among them the FTSE 100, EURO STOXX 50, Shanghai Composite and TOPIX in Japan.
Much of this was largely down to the fact that, while oil and earnings certainly matter to investors, central bankers appear to matter more (for the time being). In a speech last week, John Williams, President of the New York Fed, said: “It’s better to take preventative measures than to wait for disaster to unfold”. Later the same day Richard Clarida, Fed Vice-chair, told the Fox TV network that policymakers can only lower interest rates to combat rising economic risks.
Investors took the comments to mean that a Fed rate cut later this month had just become more likely. They made a similar assumption about the ECB, which is due to meet this week to make its next rates decision; the market is now pricing in a cut as the most likely outcome – potentially taking the base rate from its current -0.4% to -0.5%. The assumption boosted European bonds and stocks alike.
Van der Leyen confirmed this week as European Commission President
Moreover, the ECB is hardly behaving like it plans to get tough any time soon. The appointment of Christine Lagarde as the new Chair suggests easy policy is unlikely to make a U-turn in the near future. The more difficult job probably falls to Ursula van der Leyen, confirmed this week (by a secret ballot in the European Parliament) as the new President of the European Commission.
Her slender majority, the rise of extremism, the ongoing Brexit saga, and the challenge of keeping Italy on board give her plenty to think about – not to mention the fraying transatlantic alliance, Turkey’s gradual defection from NATO to Russia, and Russia’s increasingly assertive role in Eastern Europe and in Western elections.
She will also need to manage a shifting relationship with Beijing – the EU and China are, by some measures, the two largest trade partners in the world. Figures released by the IMF last week showed that China is no longer a net lender to the world and now operates a 0.4% surplus (against a 1.4% deficit last year, and a 10% deficit in 2007) – the eurozone still posted a surplus of 2.9% last year.
Boris Johnson or Jeremy Hunt?
Meanwhile, in the UK, the final week of canvassing took place before the Conservative Party announces its choice to be leader, and therefore the new Prime Minister, tomorrow (Tuesday 23 July). Last week, the country’s fiscal watchdog warned that a no-deal Brexit would drop the country into recession, while Gordon Brown forecast that clear favourite Boris Johnson may be the last PM of the UK, as Scotland could leave the union over Brexit.
Parliament voted to make a no-deal Brexit somewhat harder than it had been (although certainly not impossible) and the Bank of England struggled to attract applications from two of its favoured candidates to succeed Mark Carney as governor: Janet Yellen and Raghuram Rajan – reports claimed candidates had been put off applying by the lack of resolution over Brexit.