14 October 2019
A duo of record runs
Last weekend saw new marathon records imitating the proverbial bus, with two major milestones coming along at once. On 12th October, Eliud Kipchoge broke two hours at marathon distance in Vienna. Fellow Kenyan Brigid Kosgei was hot on his heels – setting a new women’s marathon best the following day in Chicago, breaking Paula Radcliffe’s long-standing record from 2003.
Vienna and Chicago are perhaps fitting cities for the new to overturn the old – particularly when it comes to economics. Vienna-dwelling political economist Joseph Schumpeter popularised the term ‘creative destruction’, the process by which capitalism destroys the old to make way for the new – a process later supported by The Chicago School.
‘Creative destruction’ in action?
Such processes were evident last week far beyond the world of running. Figures released by JPMorgan Chase show that the number of Chinese companies listed on public markets has now surpassed the number of listed US companies: around 4,800 Chinese companies against some 4,400 in the US (a number that has decreased from more than 8,000 in 1996).
Investors, it seems, are divided on whether public or private works best, but that need not be a bad thing, as Director of Investments at St. James’s Place, Rob Gardner, discusses:
“There are advantages to both markets – public markets provide scrutiny and access. Private markets, on the other hand, can enable companies to think longer term without some of the short-term pressures that come with quarterly reporting and market overreaction. But even then, private markets are set to become more accessible to retail investors, too. So, there are benefits to both, and investors may find both useful in achieving their long-term goals.”
Short-term reaction to trade rumours
In the short term, markets are prone to oversensitivity, and last week far from bucked the trend. Leading indices rose in the US, China, Japan, EU and UK last week, mostly in response to rumours of changes in political momentum, rather than to actual events. These drivers were related to trade – above all else, US-China trade negotiations continued to hold investor attention. After all, the US consumer accounted for 17% of global GDP last year, and its biggest import partner is China.
Last week, the US added more Chinese companies to its trade blacklist ahead of a negotiating delegation visiting Washington. The US took aim at eight technology companies for, among other practices, providing facial recognition technology to the Chinese government for use in Xinjiang. Even if the blacklisting was to encourage Beijing to accommodate US demands in talks, Washington is also pushing hard for trade progress elsewhere, and last week signed a trade deal with Japan. All the same, in the World Economic Forum’s global competitiveness rankings, the US last week lost its top spot to Singapore.
While the US pull out from Turkey may have the greatest aftershocks in the long term, markets were more sensitive to signs of hope for trade talks with China. The US’s Median Consumer Price Index, meanwhile, struck 3% for the first time since the great recession. Other indicators, however, are pointing to a US slowdown.
The Fed and ECB turn dovish
Meeting minutes released last week by the Fed show that the bank’s Federal Open Market Committee has turned both more dovish and more divided, with the European Central Bank showing a similarly dovish tilt. The latest data on German industrial orders, which shows a larger-than-expected dip and has raised expectations of recession, will only add to the ECB’s desire to prop up – even if doing so incurs further wrath from northern European countries.
Continued disputes over trade will not make it any easier to drive growth and, among those, the dispute about taxing multinationals took a new turn last week. The OECD announced its plan to provide a new blueprint for international tax rules, so that countries can more effectively tax companies that do “significant business” within their borders. Highly-globalised industries would be most affected, not least the technology sector – with such arrangements remain little changed since the 1920s.
Brexit deadline approaches
The UK’s own trade debate, Brexit, continued swiftly – with sterling reacting accordingly. The week opened with disillusion, but later in the week the currency enjoyed its biggest rise against the dollar since March, plus gilt yields fell as investors sought out risk and UK-focused companies saw share prices rise – all thanks to joint statements made by Boris Johnson and Leo Varadkar, following the former’s visit to Dublin.
It soon became clear, however, that the two sides remained too far apart to find a meeting point, meaning the UK has very little time to cut a deal ahead of the meeting of the European Council later this week. It was perhaps cruelly symbolic that, over the weekend, Northern Ireland passed 1,000 days without a government.