Before the coronavirus hit, I asked if populists could govern as populists? At the time, markets were worried by the rise of anti-Euro populism in the European Union, and by some of the views of Donald Trump in the US and Jair Bolsonaro in Brazil. Some investors were troubled by their attacks on parts of the established world and governmental order based on treaties and world institutions.
As expected, the US Senate reached agreement between the parties for a $2 trillion (£1.6 trillion) fiscal stimulus package on Tuesday, which gave the markets a big boost.
This week, the Western world changed dramatically. The US, Germany, France, the UK and many other advanced economies, saw the imposition of new strict controls or tough guidance to reduce people’s contact with each other.
Over the last week, the Democratic contest to find a presidential candidate clarified. The front runner Bernie Sanders continued to poll well, although not as well as some anticipated. He did not achieve a knock-out set of results in the 14 states with primary elections on Super Tuesday.
The spread of the coronavirus has upset the bullish markets that started 2020. There will be an immediate impact on the Chinese economy. Three more days have been added to the new year holiday. Consumer confidence is likely to fall, and in the worst-affected cities people are not going to the shops or out on the streets.
When the world’s two largest economies and powers sit down to talk, the world waits to learn what they have agreed.
Markets thought that they knew that Donald Trump would not go to war in the Middle East. He had promised the US that he would bring troops home and avoid entanglement in foreign wars, which were easy to enter and difficult to end.
The central banks of the world are keen to boost economies. Many are using the scope of falling US interest rates to do something similar themselves. Some are worried about the lack of money in the markets, and are taking action to boost liquidity. Some are concerned about a low rate of new borrowing reflecting poor rates of capital investment. They are making more money available on easier terms for lending.
Over the last ten years of recovery from the boom and bust of the western banking crash shares have performed well. World shares have produced a return of 155% over the decade. The years have been characterised in the advanced world by an unusual combination of low interest rates and low inflation. Cheap imports from rapidly expanding global capacity have coincided with low cost digital business models, large migrations of labour and a strong trend to a more global approach to employing people and sourcing products.
The meeting of G7 leaders over the weekend in Biarritz (pictured) led to a tweet by Donald Trump suggesting that there could be more trade talks with China after all.
It was sufficient for a modest rally after the tariff-induced sell-off last week. The markets remain fixated by the twin stories of possible rate cuts to come, and the damage the trade wars might do if they escalate.