What sent the stock market haywire?
It was a scary day for investors, but the long-term effects may be minimal.
Mōrena, and welcome to The Bulletin for Wednesday, August 7.
In today’s edition: Genial midwestern governor Tim Walz picked as Kamala Harris’s running mate; speaker of the house says he’ll take a sterner approach going forward; majority of voters support the Greens booting Darleen Tana from parliament. But first, the stock market is on a roller coaster ride – should you be worried about your Kiwisaver?
What just happened?
“Chaos”, “rout”, “freefall”: headline writers were tripping over themselves to come up with dramatic descriptions of what happened in the markets this week. On Monday Japan’s Nikkei fell 12%, the biggest single-day fall since the Black Monday crash of 1987, and other markets across Asia, US and Europe also saw major drops. In Australia, more than AU$100 billion was from local shares in the worst sell-off in four years, reports 9News. Tech stocks were hit hardest: chip maker Nvidia, which was recently named the world’s most valuable company, was down by as much as 15% at one point on Monday, reports the Guardian, while bitcoin also fell sharply. The VIX index – a tracker for the volatility of the US stock market – logged its largest ever intraday jump on Monday, closing at its highest since the worst of the Covid economic crisis in October 2020. While both the markets and many individual stocks experienced a healthy rebound on Tuesday, uncertainty remains high. Experts whom RNZ’s Susan Edmunds spoke to said investors should expect more large swings – both up and down – over the coming months.
Why the freefall, and why now?
The ructions were set off by two events happening almost simultaneously: On Friday, much weaker-than-expected job numbers in the US strongly suggested that a recession was imminent. “The US sharemarket, after a massive surge since the AI frenzy gathered pace late last year, was vulnerable to any bad news, and the centrality of US financial markets to global financial flows ensured that volatility in those markets would have global spillover effects,” observes Stephen Bartholomeusz in Stuff. And then strike number two occurred: the Japanese central bank raised interest rates, cratering the yen carry trade between the two countries. As Reuters explains, carry trades occur when investors borrow money from economies with low interest rates such as Japan to fund investments in higher-yielding assets in countries like the US. With higher Japanese interest rates, the yen rapidly strengthened against the US dollar, and those carry trades were suddenly far less attractive. Traders rushed for the exits, and the chaos in the markets only intensified.
What it means for New Zealand
While your Kiwisaver balance may not look as good as it did a month ago, this week’s sell-off is unlikely to have much of an impact on private investors here. “Even if things spiral and this sell-off starts to look like a serious crash, still don’t panic,” advises Liam Dann in the Herald. “Panicking never helps. This is not a repeat of the GFC. Major banks aren’t faltering, and the gears of the financial system aren’t seizing up. This is not 1987.” As Duncan Greive points out in The Spinoff, the chaos could actually benefit borrowers, since the interest rate cuts already in motion are now likely to come even sooner and go deeper. “This will release more money into the economy, through homeowners paying less interest, and allow businesses to borrow at cheaper rates.” With today’s unemployment numbers expected to be the highest since 2020, economists may soon be revising their interest rate forecasts even further downwards.
The worm turns on AI hype
A major contributor to the turmoil has been the steep decline of tech stocks like Alphabet (Google), Apple and Nvidia, after a months-long surge driven by AI hype. Now, writes Greive, “there are murmurs that AI might not be the technological marvel it’s cracked up to be … and that its costs and demands for power and data will stand in the way of it being the profit machine the big tech valuations imply.” Even more pessimistic is US-based tech writer Ed Zitron, who has been warning of an “AI bubble” for months. Now, he says, the bubble is close to bursting, “as everybody wakes up to the mediocrity of generative AI”. He says the next month will be critical to the future of the artificial intelligence boom. “And I believe this is a time for industry-wide introspection – and to consider why this bubble existed in the first place.”
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Regenerative agriculture aims for healthier soils, greater biodiversity, cleaner waterways. But most of New Zealand’s regen ag research has focused on beef, lamb, dairy. Horticulture has been a blind spot.
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Genial midwestern governor Tim Walz picked as VP
Minnesota governor Tim Walz has been chosen by Kamala Harris as her running mate in this year’s US election. His selection “caps the Democrat’s short but swift ascent from a relative unknown to a leading driver of the party’s attacks against the former president and the MAGA agenda”, notes CNN. Walz is credited with popularising the major buzz word of the Democrats’ campaign, that Donald Trump and his allies are plain “weird”, after he used the attack in a TV interview that went viral. He’s a popular pick among progressives for his solidly liberal governing record, including the introduction of free school meals, strengthened LGBTQI+ rights, increased protections to allow workers to unionise, and expanded medical and family paid leave. While that may endear him to the Democratic base, there are some worries he may be seen as too leftwing by swing voters. However his good nature – he’s already been dubbed the campaign’s “happy warrior” – and plainspoken manner of talking about Trump make him an effective messenger for the campaign, which likely hopes Walz will boost the ticket's appeal with rural voters, reports Axios.
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Speaker of the house says he’ll take a sterner approach
Speaker Gerry Brownlee will be “much more vigilant” about upholding parliamentary standards in future, following a week of controversy over MPs’ behaviour and a claim by Act that it was being racially victimised. Addressing the House at Question Time on Tuesday, Brownlee said he had previously thought that MPs should be trusted to behave appropriately and "in a manner that reflects the choice of voters to send them to this House,” but that “was perhaps too hopeful a position". He advised parliamentarians who felt standards had been breached to take their complaints to the recently installed commissioner for parliamentary standards. However Act leader David Seymour, who has been vocal about what he believes is poor behaviour by Te Pāti Māori, says he is ideologically opposed to the commissioner. “The idea that an unelected person can sanction elected MPs is actually an affront to the voter," he told RNZ, adding that he was pleased that the speaker "very graciously accepted that he needed to do it different and better".
Click and Collect
A majority of New Zealanders want the Greens to use party-hopping rules to expel Darleen Tana from parliament altogether, according to a new RNZ poll.
Department store Smith & Caughey is to remain open on Queen St in a reduced-footage, single-storey format. Its Newmarket store will still close, most likely at the end of next month.
Minister for arts, culture and heritage Paul Goldsmith ordered officials to remove te reo Māori greetings and references to "Aotearoa New Zealand" in an official invitation to the formal Matariki celebration this year.
Leaders at Starship children’s hospital say the repeal of section 7A of the Oranga Tamariki act will make their job more difficult, since keeping children from “their own tikanga and whakapapa” increases the risk of poor health outcomes.
Lyric Waiwiri-Smith presents a brief history of te reo Māori in parliament. Hera Lindsay Bird considers the biggest scandals of the 2024 Olympics (so far). Alex Casey praises the merits of a good, ugly, Olympics cry. Shanti Mathias reviews a new play that wants you to feel the full emotional force of the changing climate. Alex Casey ranks the players in last night’s agonising Traitors NZ finale. For The Cost of Being, a migrant expecting her first child saves for maternity leave.
That’s it for today, thanks for reading.
Let me know in the comments, or get in touch with me at thebulletin@thespinoff.co.nz, if you have any feedback on today’s issue or anything in the news.
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On Paul Goldsmith's letter, I think a cabinet minister is entitled to draft letters using language he is comfortable with, and must not be dictated to by state servants. I suspect those servants already knew of Goldsmith's likely reaction when they drafted the letter they expected him to sign. The heads that should roll are those of the state servants who prattled to the press.