The Hindu Newspaper Editorial Vocabulary : 27-December-2018

Winter bear hug: on weakening stocks

Stocks everywhere show signs of weakness as central banks tighten monetary policy

U.S President Donald Trump probably did not have his best Christmas this year. American stocks suffered their worst Christmas-eve loss in market history with the Dow Jones Industrial Average losing a massive 650 points on Monday, a drop of almost 3% within a single trading session. Mr. Trump has been keen on projecting the stock market’s performance as a gauge of how well the U.S. economy is doing under his presidency. While U.S. and global stocks performed extremely well in the first year of Mr. Trump’s presidency, they haven’t lived up to his expectations this year. The Dow Jones, now down almost 19% from its peak in early October, is clearly teetering near bear market territory. The index is down about 12% since the beginning of the year. The S&P 500 is already more than 20% down from its intra-day peak during the year, thus meeting the common definition of a bear market. And the Japanese Nikkei index dropped 5% on Christmas day. The Christmas-eve slump in the U.S. came after Treasury Secretary Steven Mnuchin’s statement on Sunday announcing the convening of the President’s Working Group on Financial Markets, colloquially known as the Plunge Protection Team, that last met in 2008 in the midst of the global financial crisis. Investors interpreted the statement as a sign of possible trouble brewing within the financial system, thus contributing to at least some of the panic in the markets on Monday.

It is no surprise that stocks in the U.S. and around the world have shown signs of weakness just around the time the Federal Reserve and other major Western central banks have been keen on ending the era of easy money by tightening monetary policy. Many major indices have either broken their short-term uptrend or struggled to go past their most recent highs. Mr. Trump has expectedly been public about his criticism of Federal Reserve Chairman Jerome Powell, who has surprised many by sticking to his plan of gradual rate hikes despite U.S. inflation being comfortably below the Fed’s target rate of 2%. He fears that rising interest rates could derail economic growth that has been quite robust in recent times and affect his popularity. Historically, politicians have generally favoured easy money policies represented by low interest rates while central bankers have insisted on sticking to their primary mandate of controlling price inflation. So the battle between the President and the Federal Reserve Chairman is not completely surprising, except for Mr. Trump’s criticism of the Fed. What is important to observe is how markets, which have now clearly begun to price in the effects of tighter monetary policy around the world, will fare in the era of more normalised interest rates.

Courtesy:  The Hindu

1.     Bear hug (noun) – tight control, squeeze (a strong financial pressure);  a takeover or acquisition  bid/offer/strategy that is potentially so attractive (or much higher value of target company) to its shareholders.

2.     Gauge (noun) – measure, index, indicator.

3.     Live up to (phrasal verb) – fulfil, satisfy, achieve/be equal to.

4.     Teeter (verb) – stagger, fluctuate, oscillate.

5.     Intra- (prefix) – within.

6.     Bear market (noun) – a share/financial market in which share prices are falling (or) are expected to fail/decline over a period of time. A “bear market” is any time period where stocks are declining in value.

7.     Slump (noun) – failure or decline.

8.     Colloquially (adverb) – informally, familiarly, unofficially.

9.     In the midst of (phrase) – in the middle of.

10.  Interpret (verb) – understand, construe, explain/regard.

11.  Brew (verb) – (of an unwelcome situation) begin to develop, loom, impend.

12.  It is no surprise (phrase) – as expected, as anticipated, as predicted.

13.  Uptrend (noun) – an upward tendency.

14.  Go past (phrasal verb) – exceed, surpass, be greater than.

15.  Federal Reserve (US) (noun) – the central banking system of the United States (The Reserve Bank of India (RBI) is India’s central banking institution).

16.  Stick to (phrasal verb) – adhere to/abide by, keep, hold to.

17.  Inflation (noun) – increase of price level of goods & services & vice versa decrease of currency value.

18.  Derail (verb) – destroy, put an end to, be the end of.

19.  Robust (adjective) – powerful, strong, vigorous.

Note: All meanings took from Oxforddictionaries.com and Google.co.in only. 
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