Reasons the stock market is jittery

Washington (AFP) – Global stocks have swooned in December amid a swirl of controversial statements from President Donald Trump and growing unease over the global economy.

Here are some of the key factors that have brought the S&P 500 to the brink of a “bear market,” a drop of 20 percent from its peak.

– Political interference –

Trump has repeatedly criticized the US Federal Reserve for lifting interest rates, loudly warning the central bank in the lead-up to its December 19 meeting against hiking again.

Those statements have flouted that longstanding practice of US presidents avoiding direct commentary on the Fed out of respect for central bank independence.

As expected, the Fed went ahead and raised interest rates last week, offering only subtle concessions to investors’ worries over slowing global growth. 

Some commentators have questioned whether Trump’s complaints may have backfired by prodding the Fed to hike rates to demonstrate that it won’t be swayed by politics.

In the wake of the Fed’s actions, US media have reported that Trump has explored whether to fire Fed chairman Jerome Powell.US Treasury Secretary Steven Mnuchin and other Trump administration officials have denied that Powell’s job is at risk, but the worry has weighed on stocks.

Trump took another shot at the Fed on Monday, saying it was “the only problem in our economy” in a tweet that did not mention Powell.

– Too many Fed rate hikes?-

The Fed itself is also a source of unease, having repeatedly raised interest rates over the last three years.Those increases mean higher costs for mortgages, car loans and other forms of debts that affect households.

The central bank has argued that higher interest rates are needed to prevent the economy from overheating.But that logic looks questionable given that last week’s rate hike was accompanied by a downward revision to its growth and inflation forecasts.

The Fed has been “exacerbating” the situation, said Quincy Krosby, chief market strategist Prudential Financial.

“The market is saying they are not engineering a soft landing, but a hard landing, in other words perhaps a policy mistake,” she said.

– Treasury secretary’s mysterious statements –

Mnuchin aimed to allay investor anxiety, recounting on Twitter on Sunday a conference call with major bank CEOs, who confirmed that they had ample liquidity and believe the US economy remains on solid footing.

But the comments were widely criticized by market watchers for raising new doubts, fears that were already brewing because of a partial US government shutdown over Trump’s battle with congressional Democrats to finance a wall on the border with Mexico.

Trump defended Mnuchin, telling reporters on Tuesday that the Treasury chief is a “very talented, very smart person.”

– Global slowdown –

The travails over the Fed come as the global economy shows signs of sluggishness.In October, the International Monetary Fund trimmed its forecasts for global growth in 2018 and 2019 to 3.7 percent for both years, down from 3.9 percent previously. 

IMF Chief Christine Lagarde said in late November that the forecasts could be taken lower still in January.

The IMF has also cautioned for months that it expects diminishing benefits to the US economy in the coming period from tax cuts signed into law a year ago. 

Companies have been repatriating fewer funds from overseas markets.In a recent note, Oxford Economics said the figures have fallen from $294.8 billion in the first quarter, down to $183.7 billion in the second quarter and just $92.7 billion in the third quarter.

– Trade War –

Investors have been worried for months about the potential impact of the US-China trade conflict on the broader economy, which poses risks to the world’s two biggest economies, which are highly interdependent.

China has already seen a slowdown in its economy.With the US now showing signs of sluggishness, investors fear they could be spillover effects on the broader global economy.