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'2015 all over again'

With Chinese markets under pressure and the Fed hiking rates, Chris Watling, CEO of Longview Economics, talks to IGTV’s Victoria Scholar about the parallels in global markets between 2015 and 2018.

Chinese equities under pressure, the Federal Reserve (Fed) hiking rates and the greenback gaining steam. Sound familiar? The latest research note from Longview Economics states the case for why 2018 is (so far) playing out in similar ways to 2015.

China’s central bank guided the yuan midpoint lower for the sixth trading session in a row, sending the currency down to the lowest level in six months, while the stock market slumped to two-year lows this week. Meanwhile, over in the United States, the dollar is on the rise inching closer to a one-year high and the Fed is firmly in monetary policy tightening mode. In December 2015, the Fed raised interest rates for the first time in over nine years while the US dollar moved higher in anticipation of tightening. Meanwhile, in the summer of 2015, China’s stock market crashed from a seven-year high, shedding around 30% in a three-week sell-off following a surge of 150% in the 12 months prior.

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Longview Economics draws parallels between then and now arguing the Fed’s normalisation is ‘creating stress across the global financial landscape’, for example, flare-ups in emerging markets. Secondly, ‘European, Chinese and other emerging equity markets have quite possibly peaked for 2018’, like they did in the first half of 2015. Other ways in which 2018 is comparable to 2015 include widening credit spreads, particularly in emerging markets, and in the report there's the argument that ‘the breadth in global financial markets has narrowed over the course of the first half of 2018 – as occurred in 2015’.

Similarly to 2015, this backdrop reflects the interaction of two factors according to Longview Economics. Firstly, the report argues that the synchronised global upswing in growth has now been replaced by US-led global. Secondly, ‘the confidence and determination, especially among Fed policy makers (and other central bankers), to continue to pursue a path of monetary policy tightening’. ‘Eat, sleep, rinse, repeat’ is how Longview Economics’ CEO Chris Watling described the Fed tightening cycle. Watling told IGTV that the Fed was ‘tightening effectively’ in 2015 and now ‘that two or three-year phase has come around again’.

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