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Trump accuses the Fed of insanity

ALINA VASIESCU, ANDREI IACOMI (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section /

Trump accuses the Fed of insanity

American president criticized the central bank for raising the interest rates 

Bloomberg: The richest people in the world have lost 99 billion dollars following the drops in the stock market

Liviu Moldovan, financial analyst: "There is no real danger of us being faced with a stock market crash"

The stock markets of the world saw major drops yesterday, especially those in Asia and Europe, following the Wednesday evolutions of the American markets. Yesterday, on the markets, panic came as a result of American president Donald Trump against the central bank (Federal Reserve - Fed), concerning the interest rate hikes.

The US President said on Wednesday that "the Fed has gone crazy", thus expressing his discontent over the fact that the Central Bank has engaged in a policy of interest rate hiking. "I do not agree with what the Fed is doing. I think the people over there have gone crazy", Trump, while pointing out that he had been expecting the market correction for a long time.

The head of the IMF, Christine Lagarde, said that the values that the exchange markets are currently at are "very high".

On Wednesday Lagarde warned that "a future escalation of the trade tensions and geopolitical risks, namely the uncertainties which concern the major economies could lead to a sudden deterioration of investors' confidence".

Analysts are saying that the decline of the markets is also being driven by the rise of the yields of government state bonds and by the new worries over the trade relations between China and the United States.

In this context, the Tokyo exchange closed down 3.89% yesterday, and the one in Shanghai - over 5%. Also, the Hong Kong stock market lost 3.5%. In Australia, the drop was 2.7%, and in South Korea, 4.4%. Yesterday, in Asia, the drop of the markets was the biggest in the last 19 months, a situation similar to the developments in Europe, where the decline was the highest in the last 21 months. The CAC 40 index of the Paris market was down almost 1% at 15:30 local time, FTSE 100 of the London market - 1.4%, and DAX of Frankfurt - down 0.5%. MIB of Milan had lost 0.9% at 15:40 local time.

In the US, in the opening of yesterday's session, Standard & Poor's 500 fell 0.2%, Dow Jones Industrial Average - 0.5%, Nasdaq Composite - 0.6%. On Wednesday, all the three indexes of the American markets dropped more than 3%.

Juichi Wako, of Nomura Securities in Tokyo, says, according to Bloomberg, that the markets are currently being "threatened", and the developments of Wall Street are caused by the interest rate hike, by the new worries over the trade relations between China and the United States, respectively by a cautious attitude of investors before the launch of the reporting period for the third quarter.

It bears mentioning that the evolution of the markets has also been influenced by the comments made last week by Jerome Powell, the president of the Fed, who said that the Central Bank is still "very far away" from the "neutral" interest rates it aspires to, which favor the growth without supporting price increases. Thus, he has suggested that the Fed would resort to several rate increases in the coming months.

Following his statements, the returns of American bonds rose significantly, with investors turning to that market to the detriment of the stock market.

Jack Ablin, investment director at Cresset Wealth Advisors, says that, as yields of government bonds are rising, capital is focusing on less risky exchange assets and more towards government bonds.

IMF: "The hike of the interest rates, justified"

Christine Lagarde, the head of the IMF, justified the interest rate hikes in the US, thinking they were "necessary developments" and even "unavoidable" for economies such as the United States, which are seeing a solid growth, rising inflation and a very low unemployment.

The American Central Bank has raised interest rates by one quarter of percentage point three times this year and intends to raise rates again in December.

The overnight interest rate now ranges between 2% and 2.25%.

Liviu Moldovan, financial analyst: "It is possible that the drops will continue"

Liviu Moldovan, financial analyst, told us that there is no real danger of being faced with a crash or a bear market. He told us: "In my opinion, at least given the data we have so far, there is no real danger of being faced with a stock market crash or a bear market. It is possible that the drops will continue, but I don't think that they will have the same intensity. We notice that the European exchanges, at least so far, have held on well, as the DAX index dropped about 1%, far less than the American ones.

From my point of view, the claim that the drop of the markets has been caused by president Donald Trump's criticism of the Federal Reserve, which we can read about in the international market, is childish. Even if the intention is to decredibilize the Central Bank, Wall Street is too intelligent to be seriously influenced by something like that.

Rather, I think that the warnings launched by Christine Lagarde could weigh in that regard too. Also, there is a reporting season coming in the US, and not least of all, the American indices are very near the all time highs which they have recently reached, so we are probably witnessing a profit-taking stage. It is true that it is picking up some speed, but at least for now, I don't think we have clear trend reversal signals".

Dragoş Mesaroş, trading director at brokerage firm Goldring, told us: "In my opinion, we are witnessing a correction of the market which has as its own result the yield hike, on 10-year US government bonds, which have exceeded 3% a year, recently going even above 3.2%, which has a negative effect on stock prices.

For now there is no real concrete data which would indicate the appearance of a bear market, because the economic data is relatively good. It is true that the economy is slowing down, but we can't be talking about a recession".

Bloomberg: Amazon founder, Jeff Bezos, has lost 9.1 billion dollars

The world's richest 500 people have lost 99 billion dollars on Wednesday, after the Wall Street turbulences have expanded globally, according to Bloomberg.

This is the second significant decline seen in one day in 2018, after the one in February, when the S&P 500 index of the Wall Street exchange fell 10% off the January highs, raising worries that a long period of turmoil would follow, as has happened following the financial crisis of 2008.

According to the Bloomberg Billionaires index, Amazon founder, Jeff Bezos, has lost 9.1 billion dollars, after the shares of the online retailer saw the most significant decline in the last two years, according to Agerpres. Bezos remains the top richest people on the planet, with a net worth of 145.2 billion dollars.

Other billionaires have posted significant losses. Berkshire Hathaway president, Warren Buffett, lost 4.48 billion dollars (but remains with an estimated fortune of 87.5 billion dollars), while Facebook founder, Mark Zuckerberg, has seen his fortune decreases 2.50 billion dollars, to 60.1 billion dollars.

The richest European, Bernard Arnault, lost 4.5 billion dollars, being left with a fortune of 66.9 billion dollars. The shares of his luxury empire - LVMH - the biggest world group of luxury products - which owns the Louis Vuitton, Guerlain and Givenchy brands - fell significantly after the company confirmed that the Chinese government tightened border controls. Due to the market turmoil, Arnault has lost more than half of the gains achieved this year. On Friday, he lost 3.5 billion dollars after the appearance of the rumors about the tightening of border controls, an action meant to reduce unauthorized imports.

In total, 17 people have lost more than 1 billion dollars. American billionaires have been the most affected, losing 54.5 billion dollars, more than any other country included in the Bloomberg Billionaires index.

IMF: "Countries need to withstand the consequences of the unavoidable capital outflows"

IMF head Christine Lagarde yesterday asked countries "to use all available tools" to withstand the consequences of the unavoidable capital outflows, amid the escalation of trade risks and the raising of interest rates, according to Kyodo and Reuters.

Present in the annual reunion of the International Monetary Fund and the World Bank, which is taking place this week in Bali, Indonesia, Christine Lagarde explained that these capital outflows are unavoidable because the world is getting ready for the impact of the trade war and of the tightening of monetary policy by the major central banks.

The head of the IMF recommended more flexibility in the management of capital flows, adding that some emerging markets, including countries in South-East Asia, have been reluctant in intensifying those controls, hoping that they would only have to be used under exceptional circumstances, according to Agerpres.

Also, Christine Lagarde warned that the trade dispute between the US and China could affect other parts of the global economy.

The escalation of trade tensions "will have a negative impact on the world economy... and will affect those countries called «innocent bystanders», which are not the target of the trade war, but happen to be part of the supply chain or supply raw materials. We strongly advise reducing the tensions and cooperation, so that the global financial system becomes more solid, fair and to stimulate the advancement of the economy", said the IMF official.

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