McCrann: Markets on a wild ride as central bankers mull over rates

The eyes of the world’s volatile financial markets will be on the Rocky Mountains resort of Jackson Hole on Friday. Here’s why.

Traders work the floor of the New York Stock Exchange. Picture: Angela Weiss

Whatever happened to the end of the world?

Just two weeks ago Wall St plunged. The Tokyo stock market dropped by a stunning GFC-sized 13 per cent in a single day, some 20 per cent over a few days.

Our own market fell 7 per cent in just two days, straddling a rather nervous weekend, slicing something like $180bn off Down Under share values. And superannuation balances.

Words like “panic” and “carnage” were thrown about – and that was at the more sober end of the media spectrum.

A chorus erupted that the Fed had to cut US interest rates and cut them now – just days out from a Fed meeting that had left them unchanged.

Even our own Reserve Bank was enjoined to cut, ahead of its meeting which was always going to leave them unchanged; and after which RBA governor Michele Bullock would disclose that the meeting had even considered a rate hike.

Just two weeks on, it’s as if all that never happened.

The Nasdaq, the home of the tech stocks, including the new darlings, the ‘Magnificent Seven’, is up 10 percent, “un-carnaging” every bit of the “carnage”.

The dowdy Dow has done the same, and is almost back to its all-time peak.

Our own market has been just a trifle more cautious, back up around 5 per cent.

We’ve lagged on the upside, not because of Bullock pouring cold water on rate cuts; local rate cuts are completely irrelevant to our market, which is overwhelmingly Wall St derivative.

But because of resource stock weakness, thanks to China. With a little bit of help from idiocy out of Canberra.

The primary lesson is, as I advised as the “carnage” was erupting, that Wall St also rather has this tendency of rushing from one side of the boat; only to immediately rush straight back.

There was a particular silliness about the initial plunge: it was in large part driven by the very thing that Wall St has been salivating for all year: the delivery by the Fed of rate cuts.

Certainly the first cut – like the sight of the first red robin of yesteryear, heralding the coming spring; the groundhog, on the other side of the Atlantic.

And then, more rate cuts after that.

Sparked of course by that poor US jobs report – as Bullock would lament at her press conference: it was only one statistic, after all.

Yes, but one would have thought, an (all-round) good news economic number: that’s to say, good news for Wall St. Maybe not such good news, for the vast mass of Americans.

So, everything turns 180 degrees; from rate cut gloom to rate cut greed.

Running down to this week’s “Jackson Hole” – the one weekend in the year when Wall St and Washington merge in Wyoming, all suitably attired in their Brookes Bros fake cowboy casuals.

Now, Wall St is lusting for Fed head Jerome Powell to promise at Jackson the rate cuts that two weeks ago, those “smartest (and greediest) guys in the room” feared he would be forced to deliver.

Sic transit (Wall St’s) avarita et imbecillus

Originally published as McCrann: Markets on a wild ride as central bankers mull over rates