2024-08-06 09:56:29
This week has been a roller coaster for investors.
The speed and ferocity of the global financial market sell-off surprised even seasoned investors, and the underlying causes were shocking.
Two key factors caused the market to plunge. First, the US employment data came in lower than expected. Second, the interest rate change by the Bank of Japan.
Fear US recession The outbreak began to spread like wildfire, sending global markets into a panic. The biggest drop in a single day Since 1987.
But now, amid the relative calm after the storm, there are signs that the plunge may have been an overreaction. Roseand Japanese stocks Rebound Most of the 12% loss was quickly recovered.
There are good reasons to worry that the United States may fall into a recession, but there is no guarantee that it will.
what happened?
Last Friday, the U.S. Bureau of Labor Statistics released JulyThis showed that the US unemployment rate rose by 0.2 percentage points to 4.3%, while the number of jobs increased by only 114,000.
The figure was well below market expectations and well below the average monthly increase of 215,000 over the past 12 months. The market interpreted the weak result as a sign that the United States may be heading into a recession.
Richard Drew/AP
Across the Pacific, the Bank of Japan just announced its first major policy stance change in some time. The Bank of Japan finally decided to end its highly stimulative monetary policy, raising its benchmark interest rate from near zero to 0.25% and reducing its purchases of Japanese government bonds.
The combination of those two things sent U.S. bond rates lower, Japanese bond rates higher, and the yen soaring against the dollar, forcing some hedge funds to sell positions to meet “margin calls.”
A margin call occurs when a trader is forced to come up with funds quickly to cover losses.
But is the United States really in a recession?
Fears that the U.S. economy is about to fall into a recession are based on the so-called “Sam Rule,” named after Claudia Sam, the American economist who created it.
This rule states that the U.S. is in recession when the three-month moving average of the unemployment rate rises 0.50 point or more from its lowest level in the previous 12 months (as was the case in last Friday’s jobs data).
However, the latest economic activity data show that the United States still Steady growthThe main service industry index shows Rebound In July.
This means that even if a recession occurs in the United States, it is unlikely to be as severe as during the COVID-19 crisis or the global financial crisis.
Recessions don’t usually last as long as economic expansions. This is one reason why economies grow over time. Economic growth boosts company earnings, which drives up stock prices over the long term.
In the United States, stock markets typically fall during recessions, then recover and climb to new heights.
Why is Australia affected?
It’s reasonable to ask how Australia got into all this. Our own stock market crashed on Tuesday after Down 3.7% At the beginning of the week.
But this has less to do with the local economy and more to do with how interconnected global financial markets have become in recent years. The increasing use of algorithmic trading, which removes the human element, may mean we see more of these dramatic market corrections in the future.
The massive global sell-off that has occurred this week is unlikely to have any long-term impact on Australia.
Our own Reserve Bank is unlikely to respond directly to this, and will instead continue to focus on getting inflation back to target – deciding catch The cash rate remained steady at 4.35 per cent on Tuesday.
While Australia could fall into recession at any time, it is unlikely to be affected by such financial market fluctuations. Australia’s own fate depends more on China’s economic outlook and commodity prices.
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