FIRST AIRED: February 5, 2018

Nice work! Enjoy the show!


You’re busy. We get it.

Stay on top of the news with our Editor’s Picks newsletter.

US Edition
Intl. Edition
Unsubscribe at any time. One click, it’s gone.

Thanks for signing up!



>> Stock markets around the world continued to take a nosedive on Monday. European stocks suffered a sharp selloff at the open, tracking big drops in Asia. The fall is on the back of a US jobs report released on Friday, which showed the biggest jump in annual wages in nine years.
Reuters' Swaha Pattanaik says theoretically, better pay should be a good thing.>> What people are worried about is that this is going to be the signal of inflationary pressures that gets the Federal Reserve to raise rates more quickly, at a faster pace if you like, through the coming year than they had anticipated.
Higher wages also means companies have, perhaps, less profit to distribute to shareholders. So that's one piece of the puzzle. Bond markets are also selling off. And as bond yields rise, you have the risk-reward of staying in riskier assets, like equities, look a little different when you can finally get a bit more of a return in bond markets.
>> Ironically, it's the signs of good wages and economic growth that are, perhaps, triggering a few nerves that will see central banks being very careful. They won't be stepping in to slam the brakes on the economy until there's more inflationary pressure. So, is it something investors should be worried about?
>> It depends when they put their money in to work into the market. If you've come in very late to the market and you've started the year and said I have a lot of money sitting in cash, I must put it to work, they'll be right to be worried because they are going to be losing money.
If you've been sitting on it for the best part of one and a half years, that's fine, you've probably made very good returns. The question is, how stretched are valuations in equity markets relative to history? And in some measures they are. So investors would be quite right to just be a little more cautious.
>> So far, some analysts are calling the decline a healthy shakeout. There's only so long markets keep going up without valuations getting a little overstretched. But it will take a while to work out how steep the drop could be.