Central banks pop champagne corks as stock markets soar

Financial Events

SHARE THIS STORY

D'turn 4May13.pngCentral bankers mean well. But, of course, good intentions do not guarantee good results.

Their intention since the start of the 2008 crisis has been to boost financial markets. They have therefore provided $tns of liquidity, which has indeed produced record highs in major stock market indices such as the S&P 500 and Dow Jones Industrials. As Ben Bernanke, Chairman of the US Federal Reserve said in January 2011:

“Policies have contributed to a stronger stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20%-plus and the Russell 2000, which is about small cap stocks, is up 30%-plus.

The problem is that there is no clear link between developments in financial markets and the real economy. As the Washington Post notes, only the wealthiest 10% of the population own large amounts of stocks. Their retirement accounts are worth an average $277k. But middle income families have just $23k in their accounts, and poorer people nothing at all.

So record highs in stock markets do nothing to boost consumer spending for the vast majority of people. Whilst on the negative side, of course, record high oil prices actually reduce their spending. People have no choice about paying higher prices to heat their home and fuel their cars. So they have less to spend on everything else.

The chart of benchmark prices shows the result since the start of 2013:

• The Fed’s QE3 liquidity programme has taken the S&P 500 (purple line) up 10%
• But European prices for naphtha (black) and benzene (green) are lower
• China’s prices for PTA (red) are also lower
• And Brent oil prices (blue) are down 8%, as consumers reduce spending
• Only US polyethylene export prices (orange) are up, and by just 2.5%

The break in the correlation between Brent and other financial markets could well prove highly important, and dangerous to company finances, as the blog will discuss tomorrow.

But this is not something that will worry the central banks until it is too late. For the moment, they are popping the champagne corks as their stock market bubble continues to inflate.

Benchmark price movements since the IeC Downturn Monitor’s April 2011 launch, and latest ICIS pricing comments are below:
Naphtha Europe, black, down 26%. “Oversupplied market is finding some relief in what industry players described as a surprising appetite for naphtha in the Asian export market”
PTA China, red, down 23%. “Polyester demand slowed slightly this week because of the 3 day Labour Day holiday”
Brent crude oil, blue, down 18%
HDPE USA export, orange, down 18%. “Traders still waiting for producers to offer lower prices for May.”
Benzene NWE, green, up 4%. “Output had been curtailed throughout Q1 owing to low prices amid weak end user demand.”
S&P 500 stock market index, purple, up 18%

PREVIOUS POST

'60 is the new 60' for the cosmetics industry

04/05/2013

More and more industries are now entering the New Normal and refocusing on the n...

Learn more
NEXT POST

Oil markets risk rapid repricing - Part 1

07/05/2013

Since 1900, as the chart shows, oil prices have never been so high for so long a...

Learn more
More posts
Economic risks rise as the lockdowns end
14/06/2020

It is now 13 years since I wrote the first post here, in June 2007. A lot has happened since then: ...

Read
China’s property sector is at the epicentre of the crisis
29/03/2020

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

Read
“They may ring their bells now, before long they will be wringing their hands”
15/03/2020

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Read
Will stock markets see a Minsky Moment in 2020?
05/01/2020

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Read
Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis
22/12/2019

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

Read
$50bn hole appears in New York financial markets – Fed is “looking into it”
29/09/2019

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainl...

Read
China’s renminbi and the global ring of fire
01/09/2019

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Read
Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500
06/01/2019

How can companies and investors avoid losing money as the global economy goes into a China-led reces...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more