Monday, November 29, 2010

There’s No Such Thing As “The Market”

There’s No Such Thing As “The Market”: "

425px-London_Stock_Exchange_LogoDan Roberts, writing earlier this year for the Guardian:

Margaret Thatcher famously outraged the left by asserting there was no such thing as society. Perhaps today would be a good moment for David Cameron to flummox rightwing orthodoxy by declaring there is no such thing as “the market”. This mythical creature has been credited with playing a key role in events of the last few days. The market was unhappy with uncertainty. The market doesn’t like coalition government. The market didn’t want to hang around and wait.

Television news crews were even dispatched down to the City of London to try to doorstep this grumpy beast, standing outside empty office blocks hoping to catch a glimpse.

The reality, as ever, is more complicated. There are markets, but many of them, all with buyers and sellers expressing necessarily contradictory opinions on where things are going.

Some of these markets have indeed shown clear reactions to the political turmoil. The foreign exchange market, for example, has seen the value of sterling rise and fall in inverse relation to Labour’s fortunes: the pound fell against the dollar when it looked possible that Gordon Brown’s departure might allow a deal with the Lib Dems, only to rise again when this receded in favour of a Tory-led coalition.

The market in government debt, or gilts, experienced a similarly bumpy ride. But those speculating this might be the start of a long-feared “strike” by disenchanted investors were somewhat let down: a regular government debt auction at the height of the political confusion was twice oversubscribed.

More importantly, all this drama was captured in a surprisingly narrow trading range. As of this evening, sterling is back where it was yesterday lunchtime, which is roughly where it was on Friday. All the intervening ups and downs have moved cable – the forex term for dollar/sterling rates, not the recanonised Vince – by a total of four cents, taking this vitally important yardstick all the way back to where it stood, er, a year ago.

The most volatile and widely quoted market index, the stock market’s FTSE 100, was perhaps the least useful in assessing what was going on. This list of big British shares is actually stuffed full of foreign companies and multinationals and is consequently much more sensitive to global economic conditions than what happens in Westminster. Just as yesterday’s huge rally was driven by the eurozone rescue, it would be wrong to read much into today’s sell-off other than a few people getting overexcited the day before.

But this is also a good day to puncture the equally specious argument that circulates at times like this suggesting we shouldn’t pay too much attention to what goes on in these confusing corners of finance.

Read more here.


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