The question of whether we are about to experience a stock market crash is on everyone’s lips. In the United States, the Dow Jones Industrial Average (DJIA) has lost 7 percent in less than a month and is dangerously close to a correction.
In Europe, the German DAX index lost 9 percent and its French counterpart the CAC index lost 10 percent indicating that the continent is already in corrective territory. In Asia, the Hong Kong HSI index showed a significant downward trend as of September 10, and the Shanghai SSE index yet dropped a bit less by 6.7 percent over the same period, but fell sharply by 23.5 percent over the last twelve months.
Against the backdrop, several issues participate in this correction, something that analysts fear it could turn into a depression after nearly nine years of uninterrupted rise in developed markets.
First, Chinese growth is weakening, then, the euro area is experiencing tensions with the first ever rejection of the Italian budget by the European Commission, finally trade tensions are increasing since the election of Donald Trump at the White House.
However, the fundamental reason is twofold and comes from the United States with a US economy so attractive that it draws foreign capital to the detriment of other countries, especially emerging and emerged ones, and most importantly with the rate hikes unanimously envisaged by the US Federal Reserve (Fed)’s members according to the minutes of the latest FOMC.
While the “Davos of the desert” is receiving many cancellations at this very hour, Saudi Arabia is at the center of international controversy following the alleged assassination of Saudi journalist and US resident Jamal Khashoggi in the office of the Saudi consul in Istanbul, Turkey.
The rise in power of Crown Prince Mohammed Ben Salman (MBS) has revived the hope of social modernization and economic transformation of the Saudi Kingdom but this episode may have spoiled it, at least for a while.
Indeed, and considering the diplomatic and financial importance of Saudi Arabia in the foreign and trade policies of its Western counterparts, primarily the United States, one can assess that the international impact of the Khashoggi case will probably be limited in the long run and will have effects inside the country instead.
For two reasons, first of all, the support openly expressed by US President Donald Trump to the Saudi government since the beginning of the crisis, then the message probably received “loud and clear” by Saudi expatriate citizens who might have been tempted to express some disagreement with the new political order in Riyadh.
Finally, given the strategic importance given to Iran’s isolation in US foreign policy, it is unlikely that Washington will profoundly alter its relations with Riyadh regardless of the outcome of the mid-term elections.
In the first stage, you believe this can work and that you will reap many benefits from putting the pressure on your business partners, however in a second stage, you realize that you have gravely damaged confidence and future growth opportunities with the same business partners.
This two-stage process sums up what a number of business leaders have explained in recent weeks as US President Donald Trump has strengthened his “America First” trade policy, notably deciding new tariffs for Chinese imports worth hundreds of billions in US dollars (USD).
On the one hand, people close to the Trump administration emphasized POTUS “hard approach” is a means of negotiation with a view to reaching a better balance for US trade; on the other hand, some business people and experts stressed on the fact that China has shown no sign of yielding to Trump’s pressure and that such a resilience could start a negative chain reaction for the global economy and thus for the US economy too.
Donald Trump’s policy is also to said be shortsighted as China will become more and more powerful in the future and more capable of crafting new ways of neutralizing US economic clout for instance by developing deeper, larger trade relations with Europe.