NEW HIGHS AFTER EVERY GEOPOLITICAL RISK SINCE 2009 Every time stock index futures fell due to the bearish geopolitical influences in the last nine years, the break was short-lived, as prices recovered and ultimately made new highs.
In hindsight, there was no need to be overly concerned about the adverse market impact of the multiple European debt crises, the Ukraine conflict and Russian sanctions, the oil market collapse, China’s economic slowdown fears, China’s currency devaluation, the Brexit vote, the U.S. China trade dispute, ongoing tensions on the Korean peninsula and ramped-up political turmoil in Washington.
The still historically low global interest rate environment will once again rescue stock index futures. Keep in mind that in spite of the U.S. federal funds rate hikes from the Federal Reserve, which are now up to 1.50% to 1.75%, U.S. interest rates are still historically low.
Remember the fed funds rate was as high as 20% in 1980 and averaged close to 10% in the 1980s. European central banks in the late 1970s and early 1980s had correspondingly high interest rates, as well.
Chart 2: US Fed Funds Rate
With some overseas interest rates remaining near or at historical lows and in many countries interest rates are still negative, there is still plenty of accommodation left in the domestic and international banking systems.
And now we have the newest geopolitical risk, the situation in Italy. Given recent history it may possibly be the case that like other geopolitically motivated downdrafts in stock index futures over the past nine years, the latest geopolitical worry, the situation in Italy, will only be able to temporarily keep stock index futures under pressure before the bullish influence of the still historically low global interest rate influence dominates and takes stock index futures higher.
THE STILL HISTORICALLY LOW GLOBAL INTEREST RATE ENVIRONMENT WILL ONCE AGAIN RESCUE STOCK INDEX FUTURES.
Alan Bush
E:
alan.bush@admis.com T: 001 312 242 7911
Source:
Tradingeconomics.com, Federal Reserve
25 | ADMISI - The Ghost In The Machine | May/June 2018
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