MASSIVE swings of City sentiment and expectation have become almost de rigueur. To take just two things, the stock market meltdown and the state of Britain’s public finances. Armageddon one minute, what’s all the fuss about the next.
Last Wednesday we had a financial market rollercoaster that raised uncomfortable memories of the 2008 financial crash, and fears that, like back then, we were about to see the follow-on of a major global recession. The reason was the slump in the oil price to a 13-year low of $27 and big bad bogeyman of the Chinese economic slowdown.
Tens of billions of pounds were slashed from share price values. Briefly, it was tinned milk and hilltops time again. One very seasoned former British regulator told me he didn’t even begin to pretend he knew where it would all end, but it was clearly very serious.
But by the end of the week markets had recovered their backbone, phlegm had replaced flight. The markets had pretty much recovered their losses, from London and Wall Street to Paris and Frankfurt. This was partly due to a rise in the oil price, but mainly the comments of the head of the European Central Bank that there were “no limits” on his scope of action to steady the eurozone ship.
It stiffened resolve. The FTSE 100 index in the UK closed up 126 points to 5,900 on Friday, leaving the market up the thick end of 2 per cent across the week. Who would have believed it just 48 hours earlier?
It doesn’t mean that we are out of the woods. It could just be a market dead-cat bounce. But that is not my point. It is more how it indicates that the financial crash and following recession has gone very deep in our collective consciousness. We gyrate wildly in our hopes and doubts.
And take public finances. In his autumn statement George Osborne was sunshine personified on the deficit, despite being into our second parliament now of trying to get rid of it. He forecast his target for the end of this fiscal year would be met. There were sceptics, particularly when obliging economic forecasts from the independent Office for Budget Responsibility helped Osborne’s calculations.
The doubters appeared vindicated when the November public sector deficit came in far worse than expected. The Chancellor was on the hook again, and economists questioned anew whether he could meet his targets.
However, on Friday Britain’s public borrowing for December came in about £10.5bn better than expected. Now economists are saying Osborne has a sporting chance of pulling it off.
Scratch head time. The pounds sterling for both financial market and public deficit volatility are surreally big to most people occupied with the daily grind.
Maybe we need to change our attitudes to the tailwinds and threats that envelop our prospects. Hemingway’s dictum of “grace under pressure” may be a counsel of perfection. But swiftly moving macro canvasses suggest we could at least have a shot at faked equanimity.