Latest / The Front / What just happened on the sharemarket?

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What just happened on the sharemarket? · The Front

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  Speaker 1: You can listen to the Front on your smart speaker
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  Speaker 1: the news from the Australian. From the Australian, here's what's
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  Speaker 1: on the Front. I'm Claire Harvey. It's Wednesday, August seventh.
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  Speaker 1: White hot tensions in the Middle East, with the United
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  Speaker 1: States rushing military assets to the region in anticipation of
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  Speaker 1: a war between Iran and Israel. That story is moving fast.
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  Speaker 1: Check out the very latest right now at the Australian
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  Speaker 1: dot com dot AU. Senator Linda Reynolds says the late
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  Speaker 1: Labor Senator Kimberly Kitchen told her Labor was going to
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  Speaker 1: bombshell in the defamation trial where Reynolds is suing Higgins
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  Speaker 1: and her husband David Charaz for mortgage holders. No rate
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  Speaker 1: cup this time the RBAS kept the cash rate at
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  Speaker 1: four point three five percent and ruled out a cut
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  Speaker 1: for the next six months. It's a welcome bit of
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  Speaker 1: certainty after days of chaos on global markets. So what
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  Speaker 1: is going on with the share market and what's it
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  Speaker 1: all going to mean for US superannuation balances. That's today
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  Speaker 1: on the front. The stock markets have an unsettling habit
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  Speaker 1: of about once a decade going into complete meltdown, prompting
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  Speaker 1: the rest of society to have to start paying attention
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  Speaker 1: to what it is they actually do in their pinstriped
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  Speaker 1: shirts and expensive warches. From the Independent News, this is
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  Speaker 1: USA tonight.
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  Speaker 2: Today is Black Monday, the day the Dow dropped more
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  Speaker 2: than five hundred points. But this crash of nineteen eighty
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  Speaker 2: seven is not just an American experience. Around the world,
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  Speaker 2: stock markets fell faster than a skydiver without a parafute.
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  Speaker 1: The cliche goes something like this. On a Monday morning,
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  Speaker 1: a bunch of twenty four year old stockbrokers go into work.
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  Speaker 1: They've had a big weekend partying and they've all got headaches.
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  Speaker 1: They've got themselves whipped up into a panic about something
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  Speaker 1: that happened over the weekend in international stock markets for
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  Speaker 1: the currency trade, and they get on their phones and
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  Speaker 1: start shouting sell at one another. The mood becomes grim.
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  Speaker 1: People lose money. Like that miss panic, everyone's a path.
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  Speaker 1: Well this week it's all happening again. On Monday. The
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  Speaker 1: Australian Stock Exchange's top two hundred index was down three
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  Speaker 1: point seven percent, the worst session since May twenty twenty,
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  Speaker 1: when the panic was about the global pandemic.
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  Speaker 3: I've been doing this for a while so.
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  Speaker 1: Eric Johnston is The Australian's associate editor. He's m go
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  Speaker 1: to expert on business, banking and the economy. The last
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  Speaker 1: time I had him on the front he was explaining
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  Speaker 1: why I shouldn't be in a rage about multi billion
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  Speaker 1: dollar bank profits. Eric is very zen. He doesn't tend
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  Speaker 1: to panic.
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  Speaker 3: When I saw stock markets around the world starting to crash,
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  Speaker 3: you always think, in the back of your mind it
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  Speaker 3: was sort of bottom outed of fall about two percent,
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  Speaker 3: two point one percent or so on. But to see
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  Speaker 3: the markets keep getting lower and lower, crossing a three
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  Speaker 3: percent threshold, that's a red line. Certainly when you look
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  Speaker 3: at it as a financial journalist seeing shares in Japan
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  Speaker 3: crash by twelve percent, they are numbers that you just
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  Speaker 3: don't see. They're once in a lifetime type figures.
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  Speaker 1: But every time this kind of market panic happens, I
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  Speaker 1: can't help myself. I go and check my superbalance. I'm
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  Speaker 1: a bit worried about this because last time I did this,
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  Speaker 1: one of these things happened. I checked my superbalance and
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  Speaker 1: it was way down.
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  Speaker 2: Eric.
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  Speaker 1: As soon as I heard about market chaos, the S
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  Speaker 1: and P falling, the Nasdaq in crisis, I immediately went
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  Speaker 1: and checked my superbalance. Is that something you would recommend
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  Speaker 1: people do.
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  Speaker 3: No, definitely not. Remember your super is long term, so
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  Speaker 3: that's for your career. You've got another twenty or thirty
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  Speaker 3: years worth of working, Claire, So the super is going
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  Speaker 3: to go up and down from day to day, so
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  Speaker 3: kind of meaningless in the biggest sense of that focus
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  Speaker 3: on the long term trend.
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  Speaker 1: It does make me worried though, that a bunch of
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  Speaker 1: twenty seven year old stock traders wearing pin striped suits
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  Speaker 1: and shouting at each other are potentially going to wipe
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  Speaker 1: out all this money that I've been saving over the
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  Speaker 1: years in my super account.
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  Speaker 3: Well, the first point I have to put you up on,
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  Speaker 3: I'm not sure they wear pin striped suits anymore.
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  Speaker 1: I'm a twenty years out in my references.
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  Speaker 3: So they're all sitting at trading desks and behind screens,
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  Speaker 3: and it's actually big boxes in the back of Gold
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  Speaker 3: and Sacks or City Group or something actually do in
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  Speaker 3: the trading. Those traders don't exist The broader point is,
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  Speaker 3: though there are big global forces that often influence the
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  Speaker 3: value of our shares that we sort of park away.
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  Speaker 3: These things rise and fall on global currents.
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  Speaker 1: Okay, so this time what caused the big panic.
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  Speaker 3: So initially Australia was reacting to quite a violent sell
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  Speaker 3: down in the US on Wall Street on Friday. What
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  Speaker 3: we're starting to see is what's called the unwinding of
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  Speaker 3: the carry trade. The carry trade is when you borrow
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  Speaker 3: money from a country where the interest rates are very
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  Speaker 3: low and reinvest that money somewhere else in the world
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  Speaker 3: where returns are much higher. So you might borrow money
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  Speaker 3: from Japan, which have near zero interest rates, and put
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  Speaker 3: those funds in, say the United States or in Australia,
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  Speaker 3: where interest rates are much higher. You get that return
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  Speaker 3: that represents your profit on that investment. That only works
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  Speaker 3: as long as interest rates in the borrowing countries stays
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  Speaker 3: low and stable, and markets remain stable as well.
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  Speaker 1: Right now, in Tokyo, it's a sweltering, humored late summer
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  Speaker 1: thirty three degrees. The locals are drinking ice cold cans
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  Speaker 1: and milky soft drinks and listening to twenty four carrot
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  Speaker 1: gold Genesis. The chart topping single from a sixteen member
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  Speaker 1: jpop band called The Rampage from Exiled Tribe Genesis. Yeah,
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  Speaker 1: and there's something else making everyone sweaty. The economy is
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  Speaker 1: going through a massive change. Interest rates are going up
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  Speaker 1: for the first time in nearly twenty years.
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  Speaker 3: So what happened last week was the Japanese central Bank,
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  Speaker 3: the Bank of Japan, increased its interest rates and suggested
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  Speaker 3: that there could be more increases to come. At the
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  Speaker 3: same time, you're seeing the prospect of interest rates in
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  Speaker 3: the United States coming down faster than expected. That's because
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  Speaker 3: of a fear that the economy there is slowing. So
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  Speaker 3: you're seeing this great arm wrestle, this great reallocation of money.
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  Speaker 3: Money being sucked out of the US market, particularly there
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  Speaker 3: was in high yielding shares such as tech stocks. So
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  Speaker 3: you like your Navidia's, your Microsoft's, your Amazons, and that's
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  Speaker 3: been reallocated back into Japan. Also, with the Japanese shares
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  Speaker 3: falling so violently, you see money sucked out of their
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  Speaker 3: Japanese share mark, which has been bit up and moved
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  Speaker 3: into Japanese bonds. And what can you do when you
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  Speaker 3: sit there watching your Komwealth Bank shares rise and fall
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  Speaker 3: not much. You just hang on for the ride.
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  Speaker 1: Coming up. Why interest rates here still aren't going down?
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  Speaker 1: It's always reassuring to talk to Eric, and you can
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  Speaker 1: read his soothing analysis every day by joining us describers
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  Speaker 1: at the Australian dot com dot au. We'll be back
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  Speaker 1: after this break. It seems every time there is a
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  Speaker 1: big story about a big kind of global share market
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  Speaker 1: sell off, that what it boils down to is some
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  Speaker 1: exotic new product that has been invented. You know, it's
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  Speaker 1: credit default swaps, or it's a CEOs or something that
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  Speaker 1: people are selling to each other that nobody else can understand.
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  Speaker 1: Is the carry trade another one of these exotic products,
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  Speaker 1: or is it something that is more significant? It's more serious.
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  Speaker 3: This time it really is different. We talk about in
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  Speaker 3: markets what we do know, what we don't know, and
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  Speaker 3: then what we really don't know. So this time it
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  Speaker 3: is different because we do know what the risks are
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  Speaker 3: out there. We've got the Chinese economy slowing, but we've
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  Speaker 3: known about that for some time. That's starting to play
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  Speaker 3: out on commodity prices. The US economy is slowing. What
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  Speaker 3: we don't know is the pace of it. Even here
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  Speaker 3: We've just seen the Reserve Bank keep its cash rate
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  Speaker 3: on hold. Although the statement was hawkish, which means that
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  Speaker 3: they are threatening further interest rate hikes. We kind of
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  Speaker 3: know that they're going to hold on until they watch
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  Speaker 3: inflation go down. There's nothing that seems to be lurking
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  Speaker 3: in the corners for markets this time. What we do
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  Speaker 3: know is the valuations of stocks like your common Wealth
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  Speaker 3: Bank shares have been bit up incredibly so Commonwealth Bank
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  Speaker 3: is trading a historic highs and is so overvalued. It's
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  Speaker 3: like when we previously walked into a shop and we're
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  Speaker 3: paying ten dollars for a lettuce. We all knew that
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  Speaker 3: they were so overvalued anyway, must have us still bordered anyway.
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  Speaker 3: Common Wealth Bank shares a little bit like that, has
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  Speaker 3: been bit up to such an extent that it is overvalued.
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  Speaker 3: So that's why this pullback is different. It's not something
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  Speaker 3: that we're all sitting here white knuckled and scared about.
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  Speaker 3: We know the risks in the world. We've been living
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  Speaker 3: with geopolitical risks for the last two years. We know
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  Speaker 3: inflations out there, so the kind of the bad stuff
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  Speaker 3: is already out there.
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  Speaker 1: You mentioned that so much trading now is automated. It's
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  Speaker 1: done by big box sitting in the corner. Has that
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  Speaker 1: created a kind of different mood in the markets? Are
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  Speaker 1: they more mature now than they were when a whole
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  Speaker 1: bunch of people who'd done too much coke were frantically
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  Speaker 1: selling everything at the drop of a hat.
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  Speaker 3: I don't know what the computers are doing, but look,
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  Speaker 3: the potentially the valuations and the calculations are going to
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  Speaker 3: buying and selling is much more sophisticated than what a
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  Speaker 3: desk jockey could ever figure out. So the instinct will come.
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  Speaker 3: Wealth Bank hit its eurnings targets this year based on
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  Speaker 3: what we know about the economy. Yes or no, a
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  Speaker 3: computer can figure that out much more accurately. But we
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  Speaker 3: are still talking about markets which are driven ultimately by emotion.
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  Speaker 3: You and I still walked into that supermarket and we
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  Speaker 3: still paid ten dollars for that letters because how we
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  Speaker 3: wanted it and everyone else wanted it at the same time.
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  Speaker 1: Cabbage is just not the same, just not the same.
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  Speaker 3: So look, markets are driven by emotion still. However, there's
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  Speaker 3: more buying and selling, there's more turning over. It's easier
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  Speaker 3: to buy and sell shares compared to what it was
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  Speaker 3: when we're talking about back in the day of the stockbrokers,
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  Speaker 3: you had to physically ring somebody up, you had to
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  Speaker 3: place an order, you had to have the money. Now
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  Speaker 3: you can just do it at a hit of a button.
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  Speaker 3: Big fund managers can just buy and sell and churn
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  Speaker 3: over their portfolios. Liquidity. People often think it's a bad thing,
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  Speaker 3: but it is actually a good thing because it helps
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  Speaker 3: markets discover prices much more efficiently.
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  Speaker 1: On Tuesday afternoon in the office, I saw you pouring
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  Speaker 1: over the statement from the Reserve Bank along with some
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  Speaker 1: of our other big brains in the business section. What
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  Speaker 1: is the Reserve Bank saying about the future of the
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  Speaker 1: economy and what do you think about how we're going
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  Speaker 1: to fare over the next few months.
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  Speaker 3: Yeah, this one. There was a lot of scrutiny coming
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  Speaker 3: into this Reserve Bank meeting because there was talk just
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  Speaker 3: a few weeks ago, real serious talk among economists that
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  Speaker 3: the Reserve Bank could in fact be forced to raise
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  Speaker 3: interest rates again and that would be a really hard
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  Speaker 3: shock to a lot of people paying mortgages. The Reserve
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  Speaker 3: is concerned that there is still quite a lot of
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  Speaker 3: spending in the economy, but it's in different areas and
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  Speaker 3: it might not be those people that have just bought
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  Speaker 3: into a house or a mortgage. We know that those
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  Speaker 3: people are doing it tough, particularly in the late twenties
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  Speaker 3: and early thirties. They're the cohort that are really feeling
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  Speaker 3: the squois. They've just got a house, maybe they've got
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  Speaker 3: a young family as well, so money is just going
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  Speaker 3: out of the door like nothing else. There's a category
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  Speaker 3: of consumers in Australia net savers. Those people have never
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  Speaker 3: seen it better before and they're spending as well. Another
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  Speaker 3: factor is and despite what we hear, unemployment is still
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  Speaker 3: quite low in the economy. If you're starting a business
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  Speaker 3: or if you're still trying to hire, it's maybe eased
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  Speaker 3: up a little bit, but it's very hard to get labor,
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  Speaker 3: to get workers in the door. So the RBA is
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  Speaker 3: still concerned, like the economy is still sort of maybe
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  Speaker 3: a little bit too overheated, and that's why they're talking
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  Speaker 3: about potential for the raid hikes.
• 13:02
  Speaker 1: Eric Johnston is an associate editor with The Australian. Sixteen
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  Speaker 1: thousand US marines should be deployed to Australia every year
• 13:14
  Speaker 1: to help us defend ourselves. That's according to a report
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  Speaker 1: revealed in The Australian Today. Check it out at the
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  Speaker 1: Australian dot com dot au