On July 17, the Federal Reserve has released the latest edition of its Beige Book. The Beige Book states its judgement that the American economy and employment situation will maintain moderate expansion, and emphasizes the policy expectations for interest rate cuts to overcome uncertainties. However, the Fed's optimism on the U.S. economy still finds it difficult to change the overall decline in the U.S. market. On the same day, the Dow fell 0.42% to close at 27219.85, the S&P 500 fell 0.65%, and the Nasdaq fell 0.46%. We also witnessed that the decline of three major European stock indices. The German DAX index fell 0.72%, the French CAC40 index fell 0.76%, and the UK FTSE 100 index fell 0.55%. The downturn in the European and American stock markets also caused a callback to occur in the Asian market the following day. On July 18, the Nikkei 225 index fell 1.97%, the Korean KOSPI200 index fell 0.3%, the Hong Kong Hang Seng Index fell 0.46%. As for China's A-share market, the Shanghai Composite Index fell 1.04. %, Shenzhen Component Index fell 1.58%, and ChiNext fell 1.66%. The commodity market also was not spared, as crude oil prices also fell sharply, while gold as a safe-haven asset remained the only one to rise against the trend, hitting a new high in more than six years.
Why is the global stock market once again falling into a consistent decline? In light of the views of capital marketers, Anbound's international financial market tracking researchers believe that there are consistent amounts of risk aversion in the global market, indicating that the optimistic effects of international trade easing and global monetary easing have gradually weakened. The short-term rebound in the capital market since July has not been able to maintain a sustainable recovery, and the capital market has once again returned to a state of uneasiness.
There are two main reasons for the callback of the global market, which in turn is led by U.S. stocks. Firstly, there are concerns about the intensification of international trade disputes. The latest developments in U.S.-China trade friction have shown uncertainties. Despite the resumption of U.S.-China trade talks, U.S. President Donald Trump has once again repeated his whimsical remarks. In addition, the U.S.-China trade friction has spilled over to other parts of the world, including between the United States and Europe, and closer to home in Japan and South Korea. These factors have aggravated the concerns of the global market, and the fragile Chinese capital market is filled with worries about the incoming storm. Secondly, there is also the concern about the callback of corporate performance under the global economic slowdown. Investors are concerned that global trade disputes will ultimately disturb supply chain security, affecting economic development and corporate profitability. Some reports also estimate that the profits of U.S. companies are further declining. The net profit of 500 major companies from April to June in 2019 is expected to decrease by 3% year-on-year. Net profit continued to decrease after the January-March period, and has dropped for two consecutive quarters since 2016. Reduced demand and increased costs also had negative impacts on many companies. It is precisely due to this continued spread of said uncertainties that put the stock market into turbulence. This also means that the global capital market will once again show a downward trend.
The simultaneous callbacks in the global market confirm Anbound's previous judgement that the global economy and capital markets are becoming increasingly fragile. Measures of monetary easing adopted by central banks around the world will also have limited impact on the economy, and can hardly reverse the global economic downturn. It appears that the turmoil caused by uncertainties in trade and the global industrial chain adjustment cannot be reversed as well. Some analysts believe that if the money supply is not increased on the basis of economic development, it will eventually lead to stagflation. In this case, the prospect of economic and corporate earnings remains bleak. Therefore, even if central banks around the world follow the Fed's move to adopt an easing policy, it would be difficult for them to encourage the asset bubble to continue expanding.
Under this circumstance, the act of central banks around the world continuing to promote easing policies is to prevent its own market bubble from bursting first, speaking in terms of the capital market. Anbound has previously pointed out that the global easing will not bring about a general increase in global capital markets in the future, rather it is likely to result in more imbalanced capital flows in the global financial sector. Aside from that, competition among international capital markets will be intensified. At present, many financial institutions have expressed concern about this "currency cold war". The loose competition of different countries will not only promote the continuation of trade war, but also aggravate the friction of the capital market to a certain extent.
Final analysis conclusion:
Looking at the performance in capital markets, any further global monetary easing will be unable to prevent a series of consequences brought about by the intensification of international trade friction. Uncertainty in the global economy will also lead to capital flows and financial market volatility, increasing the possibility of new financial and economic crises.
