The US Stock Exchange has lost 20% in the last three months. It is the biggest drop since the financial crisis of ten years ago. Neither the possibility of non-payment of the American debt in 2011 nor the problems in the euro zone of the period 2010-2012 led to such a forceful fall. Simultaneously there has been a real collapse in the price of oil (-42%) since October and, at specific moments of this week, the instability has been contagious to the currency markets: on Thursday, the yen suddenly revalued against the dollar.
In parallel, the sense of political chaos in Washington has been increasing with the closure of the Administration and with Donald Trump lashing out against the President of the Federal Reserve, which has tried to prevent further interest rates, thus violating the independence of the US central bank, while calling for another of its objectives: to get the dollar to depreciate.
All this with the backdrop of the commercial war between the US and China, whose collateral damages affect so many soybean growers in the US Midwest (mostly voters of Trump, on the other hand) who have not managed to sell anything to their main customer, China, since May. as the technology company Apple, which this week acknowledged that its results in China will be very negative. Trump's chief economic adviser, Kevin Hassett, publicly acknowledges that the same will happen to other American companies.
Is there a way to sort out this complicated and sometimes chaotic puzzle? The crises of the past come to our aid. First of all, we must take into account that interest rate rises tend to lead to stock market declines. That is why it is normal that, after three years increasing them in the US, their stock markets are falling. The problem arises when, in addition to that, business profits fall because that is the herald that announces recessions. But the last published benefits were in record numbers. The alarm comes this week with the announcement of Apple. It is also alarming that the price of oil has fallen so much as it is a symptom of a global economic slowdown already confirmed by the economic data of China, Japan, the Eurozone and, to a lesser extent, the US. The price of industrial metals has also fallen, another symptom of slowdown.
Will this end in recession? The fall of Wall Street is very reminiscent of the recession of 1990 (as now, it fell by 20%) but the situation is similar to that of just three years ago (January 2016) when it seemed that the recession was imminent. that China decided to stimulate its economy with a huge credit program that cut the recessive imposed at the root. It seems that he is preparing to do it again: China can not afford to break the social pact that has exchanged liberties for prosperity.
The markets are noisy and sometimes create false expectations. In 2016 the arrival of Donald Trump to the White House was greeted by them with a couple of hours of despair, first, and two years of celebration, afterwards. Something similar happened with the Brexit: all were bad omens that, after a couple of months, had dissipated. The markets preferred to hide their heads under the wing and act as if nothing was happening. The consequences are already noted. Will China arrive in time for the rescue? Everything seems to indicate yes.