Commentary on financial markets – September 2018
Highlights:
- US: tariffs on goods from China and rising interest rates
- Oil: Brent crude oil price breaks the USD 80/barrel mark
Commentary:
Also in September, the US stock market managed to surpass its all-time highs. Although there seems to be no more justification for further stock price increases, market participants are not only behaving rationally (in boom times they succumb to optimism and in crises to panic). The search for growth factors is thus becoming increasingly difficult, while all the recent events are rather negative news for US and global equities.
The US is escalating its trade war with China. Trump announced the imposition of additional tariffs, which came into force on 24 September, at a rate of 10% and with a total impact of USD 200 billion. He also threatened tariffs on all imports in the event of retaliation from China. However, some specific products are still excluded from the tariffs (e.g. Apple products). In addition, the US President spoke at a UN assembly where he lashed out at the trade deficit with China, which he considers unacceptable. Trade wars are dangerous and, in the long term, can significantly damage international trade and, ultimately, the production and wealth creation of individual countries.
Moreover, in September, the US Fed raised interest rates by a quarter of a percentage point, which is also not good news for stocks. Moreover, Fed officials have confirmed their plan to raise rates further in December. Rates are expected to rise further next year, with three rate hikes planned.
The CNB has also raised interest rates to 1.5%. Central bankers have also expressed their willingness to raise rates in the future. Governor Jiří Rusnok has not ruled out further increases this year, with the target level expected to be in the range of 2.5-3%.
Central banks are trying to tame inflation, which is being driven forward by rising oil prices in addition to consumption. In particular, the price of Brent crude oil broke the USD 80/barrel mark in September and continues to rise further. This is due to rising demand and reduced production from Iran, which has once again found itself on the US blacklist under Donald Trump. The whole situation is exacerbated by the OPCE oil cartel, which is trying to limit production so that the price rises even further.