Global financial crash: Is the world near the next financial crisis?
The International Monetary Fund (IMF) warned of “large challenges” ahead “to prevent a second Great Depression” in a report released in October.
But is the world really close to the next financial crash?
The economy is typical unpredictable but there are several factors in recent months which have sparked particular volatility in the global market.
Here Express.co.uk looks at some of these variables and what they could mean for the world economy.
PRICE OF GOLD:
Adrian Ash, head of research at BullionVault, said there is a correlation between the price of gold rising when the stock market is underperforming.
The price of gold in British pounds has rocketed by 23.74 percent, or £5.87 per gram, over the course of five years, according to online dealer bullionbypost.co.uk.
In terms of the euro, the price of gold has gone up by 16.63 percent over the last half a decade, with a change of €4.93 per gram.
The picture is not so positive for the price of the yellow metal in US dollars, with the cost plunging by 1.86 percent over five years to be down $0.75 per gram.
This week has seen the price of gold in US dollars inch up on a weaker currency, sparked by concerns about global economic growth.
For UK investors and savers, gold’s gains since the start of October mirror the 7 percent drop in the FTSE almost exactly, Mr Ash explained.
He told Express.co.uk: “This could be a warning that years of stock-market losses lie ahead.
“Gold tends to do well when other assets do badly, most especially the stock market.”
He said: “What really counts for gold prices is investment demand, where money comes into the bullion market from other asset classes, seeking safety.
“That’s what drove prices higher during the DotCom Crash and then the financial crisis.
“It’s what also spurred prices higher on 2016’s Brexit referendum shock.”
Global financial crash: The New York Stock Exchange on November 20
The Dow Jones Industrial Average has fallen by almost 1,000 points over the last two days alone.
In fact, October 2018 was among the most volatile months in 118 years for the US stock index, Fox News reported.
But why is the Dow Jones so crucial to the wider global market?
The Dow Jones is price-weighted, meaning stocks with higher share prices are given a greater weight in the index, according to investopedia.com.
Goldman Sachs chief US equity strategist David Kostin said to CNBC: “Put simply, stocks have already started to price in the risk of an economic slowdown.”
Kane Thomas-Mason, a trader with Spreadex, told Express.co.uk: “From a technical perspective the recent double top suggests that we might see a short term down trend and prices don’t look set to break the resistance level around the 26700 mark.
“In addition to this, the majority of technical indicators, including the RSI and MACD, are offering strong sell signals.
However any progress in trade talks between the US and China at the G-20 summit in December could see a trend reversal and prices climb above this point, according to Ms Thomas-Mason.
She said: “The results of this meeting between Trump and Xi will be key and could have a great impact on markets globally.”
Global financial crash: Bitcoin dropped below $5,000 this week
Bitcoin was worth more than $14,000 in January but since then, digital assets have lost close to $700 billion of their market value.
This week saw Bitcoin plummet to $4,385.52, marking the first time in more than a year the cryptocurrency has dropped below $5,000.
The cryptocurrency’s decline has also caused BTC rivals including Ether, Litecoin and XRP to join the decline.
Nigel Green, founder and CEO of deVere Group, claimed the fall in Bitcoin and other cryptocurrencies could have a wider impact on the global market, with a fall having the potential knock-on effect on stocks.
He told Express.co.uk: “This turbulence is likely to have a wider effect on global stocks as cryptocurrencies are alternative assets.”
Mr Green blamed the decline in cryptocurrencies on a combination of uncertainty regarding the Bitcoin Cash hard fork and the growing regulatory scrutiny in the US.
However, he maintained the future is still positive for Bitcoin as he described the cryptocurrency as “the future of money”.
He added: “This was then exacerbated by some investors following ‘the herd’.
“Bitcoin has made-up some of its losses on Wednesday. Whilst it remains unclear if the floor has been found, a long-term upward trajectory for the wider crypto sector can be expected.
“Indeed, the market, I believe, will reach at least 5,000 percent above its present valuation in the next 10 years.
“Why? Because investors know digital, global currencies, in our digitalised, globalised world, are the future of money.”
Global financial crash: Investors have raised concerns over potential rising US interest rates
US INTEREST RATES:
Investors have raised concerns over the potential of rising US interest rates over the next few months, with expectations of further increases pushing up bond yields.
The global market was left rattled over the inflationary impact of rising rates, as stocks in Asian in particular saw a slump in October as investors began to sell.
The Federal Reserve is anticipated for another hike in December, on top of the three other increases already planned in 2018.
But the biggest critic of soaring rates has been US President Donald Trump, who branded the Federal Reserve as “crazy” in a scathing rant.
The Fed snapped back at Mr Trump, claiming the US economy is strong enough that efforts to encourage borrowing and boost economic activity is no longer necessary.
Matt O’Brien, economics report at The Washington Post, said US interest rates “are starting to get a little high by our post-crisis ones”.
Longer-term interest rates show what markets think short-term interest rates are going to average over that time, Mr O’Brien commented.
He added: “Plus a little extra to make up for the risk that inflation ends up being higher than people thought it would.
“So when long-term rates are lower than short-term ones, what’s known as an ‘inverted yield curve’, it’s telling us that markets think the Federal Reserve is going to have to stop raising rates and start cutting them in the near future.
“And when would it do that? Easy: when it’s trying to fight a recession.”
Global inflation levels have continued to steadily increase over the years, with the biggest rise in recent times being sparked by the 2008 financial crash.
According to data from the International Monetary Fund, the annual percentage change in global inflation in 2018 is 3.8 percent.
James Bateman, chief investment officer, multi asset, Fidelity International, said higher-than-expected inflation rates could prove problematic for the global economy.
He told Express.co.uk: “We expect US inflation to continue to rise throughout 2019, beyond the Fed’s 2 per cent target.
“While our base case is for a moderate increase, the biggest problems in markets often go unnoticed until it’s too late. Higher-than-expected inflation is one of those potential problems.
“We haven’t seen inflation run unchecked in developed economies for several decades, leaving many convinced that central bank independence has tamed it for good.
“These are fertile conditions for complacency, and there is a real risk of inflation spiralling if central banks pull back from further monetary tightening, fearing a market backlash.”
While the Fed may battle for control of inflation, the European Central Bank may not have that luxury, according to Mr Bateman.
He said: “Inflation and PMI data have disappointed in Europe, informing our negative outlook for the bloc.
“We expect downward pressure on the euro, and are negative on European high yield and periphery government debt, for as long as political uncertainty and slow growth define the region.”
Global financial crash: Shares in Facebook nosedived this week
As well as the Dow Jones plunging in value, shares in some of the world’s biggest technology giants – including FAANG stocks – have also tumbled this week.
The technology sector took a hit to its stocks for the second day running on Tuesday, with Facebook shares falling by 0.9 percent.
The social media giant dropped 5.7 percent on Monday off the back of a negative Wall Street Journal report claiming the company has adopted a new aggressive leadership style.
Mark Zuckerberg was reported to have said Facebook is at war and “he planned to lead the company accordingly” in the wake of the Cambridge Analytica scandal and how Facebook handled the situation.
The Facebook CEO later dismissed the wave of negative press and said the coverage was causing “bad morale” among members of staff at the social media platform.
Apple shares also fell down another 3 percent on Tuesday, having fallen nearly 4 percent on Monday as the Wall Street Journal claimed the company has slashed production orders for its latest iPhones.
It is now down 22 percent from its October record closing high in the wake of a disappointing holiday quarter sales forecast and weak outlooks from several suppliers.
The company has yet to respond to coverage of the report.
Amazon and Netflix also plummeted by a further 3 percent on Tuesday.
Writing on nasdaq.com, contributor, President of PPCA Inc and Target Date Solutions, Ron Surz, said global markets have been impacted in the past by declines in shares of heavyweight firms.
He said: “At this point, it’s not clear how far the correction will go, but we have experienced toppling markets in the past that were driven by the world’s biggest firms.”