But last Thursday US President, Donald Trump, released another tariff bomb and this week China added currency to its arsenal. Trump returned volley – the US officially branded China currency manipulators.
If the $90 billion fall in the value of Australian shares this return to hostilities has sparked is a meaningful gauge of the mood of investors, then pessimism definitely understates it. Fear and panic would be a better description.
Of course the brave usually wade into the sharemarket after large falls to scoop up oversold equities.
By early Tuesday afternoon bargain hunters started to emerge snapping up the heavily oversold iron ore stocks – pushing BHP, Rio Tinto and Fortescue back into green territory.
It is also fair to say that until this week the share market had been looking a little toppy. It had tested 12 year highs on back of stretched valuations and in Australia, at least, the 2019 profit season was not shaping up well – with little earnings growth outside the mining sector.
But as any student of the history of markets will attest, psychology usually trumps financial fundamentals when it comes to stockmarkets.
CFOs are less likely to be rocked by the daily equity market movements. But they their mood is very sensitive to the forces that are moving the market.
A year ago they were far more optimistic than they were a month ago, according to the author of the poll, Deloitte.
Net optimism was 73 per cent a year ago. It was 60 per cent last month. Eighteen months ago net optimism was more than 90 percent. So the trend is clear enough.
And even before this week’s trade war escalation, close to half the CFOs surveyed reported that rising tensions between the US and China had already affected their businesses.
Interestingly, three-quarters of respondents thought that the lower interest rates – the two cuts we had in July – would boost our economic performance but only one-third thought the lower rates would prompt new investment in their businesses.
“CFO fears have risen about the possibility of global growth stagnating for an extended period of time, and China is still the biggest concern by far,” says Deloitte’s Steve Gustafson.
On the trade war front Gustafson observed that net optimism has turned to net pessimism.
The decidedly bright spot in their views on the Australian economy has been the interest rate cuts and the prospect at least one more over the next couple of months.
The Reserve Bank decided to take a breather this month and leave rates on hold.
When the survey was taken in June/July the majority of CFOs expected rates to be lowered or remain on hold. But that would not have required a crystal ball – the RBA had already made this clear.
A year ago, no CFOs anticipated a rate cut over the next 12 months.
During the latest poll, around one-third of CFOs thought the Australian dollar would be lower in 12 months. But they probably didn’t expect the currency to drop as precipitously as it did this week.
It just goes to show that sentiment can turn on a dime.
Elizabeth Knight comments on companies, markets and the economy.