Bassanese Bites: Bubble trouble – February 17 2020
Global stocks continued to shrug off coronavirus fears last week with the S&P 500 up a lazy 1.6% to reach a new record high. Reports of a possible peak in the number of new coronavirus cases was the main (positive) market development, notwithstanding a surge in reported cases in China – due to an apparent change in reporting methods. At this stage global markets are still attempting to “look through” the viruses’ hit to global growth – as it’s still only likely to be short-term – though this could change if the (still relatively small) number of cases outside of China begins to rise.
Also noteworthy late last week was more Washington talk of a US “middle class tax cut” plus a proposed plan to encourage everyday American’s to invest in the surging stock market. This could be just the talk Wall Street could latch onto to support a further rally this year, especially if looks like Trump will win in a canter. Of course, whether he could get such a package through a Democrat controlled lower house remains to be seen – but that’s a problem for 2021! It also reminds me of former President George Bush encouraging more everyday Americans to buy a home during the housing boom – and we know how that turned out. It adds to my suspicion that this decade long bull market could eventually end via a blow-off bubble, driven by central bank persistent low interest rate policy.
In Australia, last week’s economic data remained mixed – though consistent with a potential “asset price led” recovery later this year. Home lending continued to rise strongly in December, which is consistent with last year’s rebound in house prices. The RBA is hoping further house prices gains – and perhaps also the strong rally in equity markets so far this year – will help boost consumer spending in coming months even in the face of persistently weak income growth. Business and consumer confidence, however, remained subdued in February – though, perhaps due to surging asset prices, at least did not sink a lot further in face of heightened coronavirus concerns.
