Friday, 7 May 2010

The emotional life of markets (re UK election)

Nat O'Connor: Both the BBC and RTÉ coverage of the UK election have included prominant reference to the reaction of markets to the results.

It is reasonable to identify correlations and possible causes between a hung parliament and currency exchange rate changes, etc. However, the citations seem to often lack sources. For example, RTÉ state that "Markets fear a stalemate could lead to political paralysis, hampering efforts to tackle the nation's spiralling debt and secure recovery from the worst recession since World War II." Firstly, what analysts are saying this? Secondly, why are the markets being treated as a singular entity with consciousness, rather than the aggregate of diverse individual and corporate investors? It would be much more accurate to report which investors are expressing concern or fear, and on what basis.

The BBC does a much better job. They state that "The markets are concerned that a weak government might be unable to reduce the UK's high budget deficit quickly." But they explain this 'concern' by going on to name specific sources for specific quotes. Some of these quotes indicate concerned investors, although it is not clear that they represent 'the markets'; if indeed, anyone can. Also, some sources (like the two ratings agencies mentioned) do not seem too concerned. Aren't they part of 'the markets' too? Or are they only part of the collective when they too reflect a negative emotional state?

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