A Reuters Open Interest newsletter

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

Global stocks slumped in a tech-fueled selloff on Tuesday, with investors unnerved by growing debt-funded AI spending, the prospect of a more hawkish U.S. rate outlook, and tightening financial conditions from a stronger dollar and higher U.S. bond yields.

In my column today I look at how investors may struggle with Fed communications under new chair Kevin Warsh if he adopts the more opaque messaging of the Alan Greenspan era. The chasm between Citi and Bank of America's Fed calls suggest the lack of clear signaling is already playing out.

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Tech shake, rattle and roll

The global tech shakeout intensified on Tuesday. South Korea's KOSPI sank 10%, the U.S. 'SOX' chip index fell 8%, and the S&P 500 tech subindex lost 4%. The Nasdaq's 2% decline meant the index lost almost $1 trillion in value.

Some of this is overdue and perhaps even warranted - the SOX hit a record high on Monday, having more than doubled in less than two months. But it's a worry, and fears of bursting bubbles and market turmoil will intensify if there are too many repeats. 

* Oil loses oomph

Oil is down 40% from its Iran war peak, with Brent crude futures on Tuesday posting their lowest close since the conflict began in late February. Brent is below $80/bbl and falling, WTI futures could soon test $70/bbl.

It's a remarkable reversal from well over $100, and a welcome one for policymakers. Inflationary pressures are fading, and oil is close to being the disinflationary force it was for the whole year before war broke out. On Monday, the year-on-year change in WTI oil had evaporated to zero.

* 10 years after

Tuesday marked the 10th anniversary of the 'Brexit' referendum in 2016 when Britons voted to leave the European Union. The country has been grappling with the economic and political consequences ever since. 

Fittingly, the anniversary coincides with yet another handover of power after prime minister Keir Starmer on Monday said he will resign. Divisions remain deep, and political and economic uncertainty run high. There's no sign of that changing any time soon, suggesting a higher risk premium in UK assets. 

As the world marks the passing of former Federal Reserve Chair Alan Greenspan, who died on Monday aged 100, it's almost fitting that the U.S. central bank is entering a period of "less is more" when it comes to communications — something the "maestro" himself would have approved of. 

Greenspan said many things during his 19-year tenure as Fed chair, but one remark to lawmakers in 1987 resonated more than most: "If I seem unduly clear to you, you must have misunderstood what I said."

New chair Kevin Warsh has made it unduly clear that he wants to steer the Fed away from its post-Global Financial Crisis path of forward guidance, "dot plots" and running commentary on the economy, moving back to the more opaque messaging of the Greenspan era. 

Analysts and investors are struggling to get a sense of what Warsh's lodestar is, a scramble reflected by a remarkable divergence in Fed rate calls between two of Wall Street's biggest banks.