ALEX BRUMMER: Wall Street euphoria difficult to sustain since Trump victory
The economic tumult of the past ten days has been enormous. The tax and expenditure budget on the labor market, the election of Donald Trump with the prospect of tax cuts and import duties, and a reduction in borrowing costs on both sides of the Atlantic are still being processed.
There has been a surge in stock prices in New York, with the S&P 500 Index, the broadest measure of U.S. stocks, 50 percent above its long-term average and trading at a remarkable 25 times earnings per share.
This comes as the Congressional Budget Office predicts that by 2027, the U.S. national debt will exceed the record levels seen in the immediate aftermath of World War II.
The bond markets in New York and London have been shaken by the debt burden. Both the Bank of England and the Federal Reserve will take a deep breath before jumping the fence on a deep cut in official interest rates. Amid all this, it has gone virtually unnoticed that the government in Berlin has collapsed following a row in the ruling coalition over a breach of German debt law.
The European Union faces stormy months with a slump in its locomotive economy and a suffering political deadlock, with the threat to moderation coming from the right-wing Alternative for Germany (AfD) party.
Fighting spirit: The implications of Donald Trump’s victory are being digested
To add to the disruption, the Dutch government must apologize to Israel after masked gangs attacked and hospitalized Maccabi Tel Aviv football supporters during their team’s match against Ajax. The Israeli Holocaust memorial Yad Vashem, located in Jerusalem, described the anti-Semitic violence as a Pogrom.
The political crisis in Germany was caused when Chancellor Olaf Scholz dismissed his Finance Minister Christian Lindner of the Free Democrats (FDP). A dispute emerged over the best way to finance a £10 billion black hole in next year’s budget. A problem not unlike the one discovered at the Treasury (and not reported to the Office for Budget Responsibility) when Rachel Reeves arrived as Chancellor.
Lindner proposed curbing debt by freezing social spending, cutting certain taxes and weakening the country’s ambitious climate change goals.
Scholz was in favor of changing the debt rule to continue financing social benefits and defense spending for the war in Ukraine.
Add to these difficulties the possibility of a trade dispute with the US over tariffs and the slump in car production, and Germany and the EU find themselves in a very difficult situation. All this suggests that a very uncertain period lies ahead for global markets. The euphoria on Wall Street that accompanied Trump’s election victory will be difficult to maintain.
Flying past
Shares of British Airways owner IAG are soaring on brisk transatlantic traffic. But it’s not all sunshine for the passengers. Routes to fast-growing destinations in the Middle East, such as Bahrain, are being canceled due to capacity shortages.
Instead of providing better service to premium passengers traveling to North America, little things – such as refreshing smoothies before arriving on the ‘red-eye’ to Heathrow – have been left out.
Investors still have reason to cheer. In the middle of the pandemic, as air traffic died down, they could never have imagined the prospect of a full-year operating profit of £3.1 billion or a share buyback of £292 million. A message, however, for IAG CEO Luis Gallego: travelers also deserve better.
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