Often markets are volatile at the end of a year and then settle down as a new year begins. Not this year. US and European markets closed lower on Friday after a very rough week despite a strong US jobs report. The week saw dramatic declines in China’s stock market and currency. Oil prices fell even in the face of major tension between Iran and Saudi Arabia.
A week when bad market news makes the front page raises two questions. How much should forecasters and policymakers look to speculative markets as indicators of future prospects? And how alarmed should they be about the prospect of a global slowdown?
Markets are more volatile than the fundamentals they seek to assess. Economist Paul Samuelson quipped 50 years ago, “the stock market has predicted nine of the last five recessions”.