Business

Market volatility - will it continue?

Journalist Jamal Khashoggi, who was slain inside a Saudi diplomatic mission in Turkey and whose death has put the Trump administration in a delicate spot with one of its closest Middle East allies
Peter McGahan

PREDICTIONS are generally a fool's game, so we mainly stay away from that. The last few weeks in equity markets have been coming, however, and we did highlight those risks, and the potential for a much greater fall than what has occurred.

When markets become top heavy, they don't always have to correct, choosing instead to flat line until earnings catch up.

It seems, however, the short sellers (those who bet on markets falling) took the opportunity created by naive political shenanigans to dump equities.

Politics don't have to impact markets, but the severity of what is currently happening would shift a mountain let alone an unstable ladder.

The truth is, markets got off lightly. Have they finished? Hardly. There are plenty of unsettled issues.

Jeff Bezos is the world's richest man. He employed the late Jamal Khashoggi - who is well known as being in the inner circle of the Saudi elite - as a journalist and you can see what Mr Bezos let him write about.

In a calamity of never-ending conflicting stories, the Saudi officials have even surprised Trump with how poor their cover up is.

The Saudi Prince however, responded with what markets feared most: Apply any sanctions and we'll hit you with harder ones, and our “Kingdom's economy has an influential and vital role in the global economy”. Of most consequence is the threat to lean more toward the East than West.

At a time when Trump and allies are trying to squeeze Iran, oil would probably hit an all time high and pulverise markets and economies. Under the cosh of a rising dollar, married with record global debt, oil prices are hammering emerging markets. In violent waters like these, you don't want to be on the crows nest.

No surprise the better fund managers moved toward the obvious safe havens of utilities, gold, as well as Japanese and Swiss currencies.

There can seemingly be no way out of this for the prince and after the bungled attempts to protect Saudi involvement, President Erdogan of Turkey chose not to tell the world what was on the tapes, potentially as he has a political deal to do elsewhere, in terms of the sanctions placed on him by the USA.

If he did play the tapes, that would have been it. He didn't. But he still has the tapes.

The pressures and geo-political spaghetti are now coming in thick and fast and, under pressure, Tony Blair has said he will not scrap his organisation's multimillion dollar programme with Saudi Arabia.

All of this is sandwiched between a UK Budget and mid-terms in the US. I expect the Budget to be bland, but the mid-terms?

If the Democrats regain majorities in the House or Senate, they will be in a position to crank up their opposition and scrutiny of Trump and of course put some blocks in the cogs of his policies.

In my recent viewings of supposed independent coverage in the US, it seems many of the Trump supporters still believe the hype, despite the fact it just isn't true. That's worrying. Many believe this mid-term is effectively a referendum on Trump's administration.

A split government would drag the down the dollar, which is seen as overvalued (not a bad thing but not great for the FTSE100). The split government would find it hard to agree on obvious matters like tax and infrastructure, and obviously investors would look elsewhere rather than wade through this treacle.

Trump's attitude of ‘my way or the high way' would backfire as his opponents sit with part control of those tolls, and undoubtedly that is adding to current concern for markets.

Will that play out? It's a flip of a coin, but whether staged or not, sending suspect devices to Obama and Clinton will do no worse than to shove the undecided their way. It's the USA, it's the ugliest of politics, but as a major consumer, it matters huge to markets.

:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like any advice call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit www.wwfp.net.

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