The headline makes for dramatic reading, but the details are far more mundane. The Dow Jones Industrial Average fell by 1.85% on Tuesday, tumbling to a close of 17663 and returning the index to a lower value than it started the year on (17833 on 2/1/15). In fact, apart from one blip, the Dow fell throughout January, only starting its rally in February. It has broken records since, but in fairness, it has been close to the record for a while. However, the take away message is that a major American stock index has only managed to put on less than two percent in the first two and a half months of the year – and that has now been wiped out.
The Nasdaq has fared better. Until last week, it managed growth of 4.1% (the Dow was up by just 0.13%, by comparison); the FTSE made 5.3%, the Nikkei was up by 8% but the Dax and the CAC outperformed the rest, putting on 17.7 and 14.3%, respectively. The boost in the Eurozone stock markets comes before the commencement of the ECB’s quantitative easing (QE) programme which commenced this Monday. It has been suggested that a lot of American funds which were created under the Federal Reserve’s QE programme found their way into emerging markets, chasing better returns than could be found in the States. The argument goes that these monies are now being repatriated to US stock markets in anticipation of better growth on the strength of an upcoming (in the same way that the end of days is approaching) interest rate hike by the Fed. The fact that the Dow has seen such a modest increase over the year to date must cast this assumption into doubt.
A look at the fate of the major currency pairs over the same time window may be instructive. The Dollar bought 0.6% more Yen at the end of last week than at the start of the year; 10.6% more Euros; 2% more Sterling. The Euro has slipped by 10% against the Yen and by 7.8% against Sterling.
The Euro has continued to slide this week on a mixture of renewed “Grexit” fears, the pricing in (perhaps) of ECB QE and the continued strengthening of US employment figures which, so punters claim, may make a Fed rate hike likely sooner rather than later (and certainly before the end of days!).