The ECB will set the speed of global credit tightening

2018 ◽  
Keyword(s):  
Financial Market ◽  
Euro Area ◽  
Market Volatility ◽  
Government Bonds ◽  
Content Type ◽  
Bank Of Japan ◽  
Global Growth

Significance The ECB's plan could tip the scales towards tighter credit conditions globally. However, there are concerns about global growth -- particularly in the euro-area -- and government bonds are proving extremely sensitive to hawkish policy, fuelling financial market volatility. Impacts The VIX index of anticipated US equities volatility is back near a record low, but volatility may rise and remain higher than recent years. Fed rate hikes and US growth outpacing the euro-area will strengthen the dollar although the euro briefly rose on the news of ECB tapering. The ECB trails the Fed by some years in policy tightening and forming a plan for unwinding QE; this divergence will also boost the dollar. The Bank of Japan is buying vast quantities of government bonds and has no plans to remove stimulus as inflation is far below the 2% target. Investors are appreciating and trusting Fed Chair Jay Powell's attempts to speak plainly and less formulaically than predecessor Yellen.

Financial market buoyancy is fragile amid rising risks

2020 ◽  
Keyword(s):  
Financial Market ◽  
Emerging Market ◽  
Equity Markets ◽  
Equity Fund ◽  
Government Bonds ◽  
Content Type ◽  
Financial Conditions ◽  
Forward Price ◽  
Growth Prospects ◽  
Global Growth

Subject Financial market momentum. Significance Global bond and equity markets continue to rally after making their largest annual gains since 2010 last year. Markets are brushing off a plethora of risks, from the escalation in tensions between Tehran and Washington to concerns about weak global growth, particularly in Europe. While valuations are becoming dangerously stretched -- the forward price-to-earnings ratio of the benchmark S&P 500 index is at the highest since 2011 -- the absence of a credible catalyst for a sharp sell-off is helping to underpin positive sentiment. Financial conditions remain exceptionally loose. Impacts Demand for government bonds is building momentum and the ten-year US treasury yield is just 40 basis points above its all-time low of 2017. Emerging-market bond and equity fund inflows have momentum and while several risks could curb this, a sustained reversal is unlikely. The Shanghai stock market has lost 5% since Wuhan’s coronavirus outbreak spread beyond China on January 13; further falls are likely. Despite low market volatility, government debt markets are much more pessimistic than equity markets about global growth prospects.

Euro-area bond sell-off will be a technical correction

2015 ◽  
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Government Bonds ◽  
Content Type ◽  
Bear Market ◽  
The Past ◽  
Us Economy ◽  
The Us ◽  
Technical Factors ◽  
Global Growth

Subject Reasons behind the current bond sell-off. Significance The sharp fall in the prices of government bonds, which has wiped 450 billion dollars off the value of sovereign debt over the past month, is attributable to crowded positioning by investors. It is unlikely to be the start of a 'reflation trade' stemming from a sudden improvement in the prospects for global growth and inflation. While there is debate about whether the sell-off in longer-dated government debt since mid-April amounts to the start of a bond bear market, the modest recovery in the euro-area and the renewed weakness of the US economy suggest technical factors are at work. Impacts The two main consensus trades (long European equities and government bonds and short the euro) are being unwound. The euro-area government bond sell-off is probably a 'buy the rumour, sell the news' trade after the ECB's QE announcement. The sell-off in long-dated government bonds is not spreading to corporate debt and to EM currencies.

Syriza may be troika's best hope for Greek deal

2015 ◽  
Keyword(s):  
Stock Market ◽  
European Commission ◽  
Financial Market ◽  
Euro Area ◽  
The Political ◽  
Costs And Benefits ◽  
Content Type ◽  
Political Left ◽  
Unexpected Outcomes ◽  
Market Exuberance

Subject Unexpected outcomes in the Greece-troika imbroglio. Significance Negotiations between Greece and its 'troika' of official-sector creditors (the European Commission, ECB and IMF) are taking place amid two meetings of the euro-area finance ministers and one summit of EU leaders before the end of February. While it is impossible to know now what the result will be, it is possible to speculate on the costs and benefits of any given scenario. Impacts If Syriza fails to achieve meaningful debt reduction, it could discredit the political left as well as the notion of EU solidarity. Greek sovereign yields and the Greek stock market are likely to react extremely positively to any deal between the troika and Greece. Financial market exuberance towards Greece will be unwound as the implications of Greece's continuing high debt load become clearer.

Prospects for the global economy to end-2016

2016 ◽  
Keyword(s):  
Euro Area ◽  
Emerging Economies ◽  
Global Economy ◽  
Commodity Prices ◽  
Content Type ◽  
Area Growth ◽  
Recent Trends ◽  
Global Growth

Subject Prospects for the global economy to end-2016. Significance Global growth could accelerate in the second half of 2016. Some emerging economies are facing better conditions thanks to the weaker dollar and some rebound in commodity prices, while others remain in recession. US growth slowed in the first quarter, while Japan's government just avoided a relapse into recession. Euro-area growth is robust compared to its recent trends, but cannot be relied upon to provide much support for the rest of the global economy.

More negative-yield bonds raise euro-area bank risks

2019 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Public Ownership ◽  
Government Bonds ◽  
Japanese Market ◽  
Content Type ◽  
Share Prices ◽  
Bank Risks ◽  
Positive Return ◽  
As If

Subject Negative yields. Significance Bonds with negative yields to maturity (NYTM) account for about 17 trillion dollars of outstanding government bonds, including the entire German Bund curve. NYTM have been embedded in the Japanese market since 2016. Yield-to-maturity (YTM) calculations are theoretical, as if interest rates turn positive over the lifetime of the bond, investors can still earn a positive return as they can reinvest the coupons. However, the German Debt Agency has started issuing zero-coupon bonds, locking investors into a negative return. Impacts Even more negative ECB interest rates on deposits will further squeeze euro-area banks, and their share prices will languish. A euro-area bank flagging that its equity and reserves cushion has eroded and it may collapse may be taken into public ownership. Germany’s NYTM experience is deeper and is occurring faster than in Japan (where institutions have had more time to adapt), raising risks.

Indonesian reform plans may boost economy longer-term

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Market ◽  
Foreign Investment ◽  
Institutional Reform ◽  
Market Volatility ◽  
Power Balance ◽  
Gdp Growth ◽  
Infrastructure Development ◽  
Content Type ◽  
Investor Confidence

Subject Jokowi's reform packages. Significance President Joko 'Jokowi' Widodo last week announced the first of three economic packages designed to re-invigorate the economy and attract foreign investment. The remaining two packages will be announced later this month and in November respectively. Similar packages have been devised by past administrations, but to little effect. To gain investor confidence, Jokowi will need to specify how his administration intends to implement its plans. Impacts Financial market volatility will continue until US monetary policy begins to normalise (probably no earlier than December). The power balance in Jokowi's cabinet militates against institutional reform. Policies to boost infrastructure development promise longer-term gain, but little boost to 2015 GDP growth.

Monetary tightening could skim frothy markets

2017 ◽  
Keyword(s):  
Financial Market ◽  
Bond Markets ◽  
German Government ◽  
Government Bonds ◽  
Content Type ◽  
Bank For International Settlements ◽  
Quarterly Review ◽  
Asset Classes ◽  
Market Valuations ◽  
Government Coalition

Subject Risk assets. Significance The Bank for International Settlements (BIS) warned of frothy financial-market valuations in its quarterly review on December 3. Overvaluation in several asset classes, including US equities and benchmark government bonds, in combination with monetary-stimulus withdrawal, increases the scope for a correction. Impacts Investors will continue to seek yield. Robust European growth will strenghten the euro against the dollar despite worries over the progress of German government coalition talks. Investors are worried about equity valuations, but a sustained sell-off is unlikely to occur without a sharp repricing in bond markets.

Blockchain adoption will grow amid bitcoin volatility

2018 ◽  
Keyword(s):  
Financial Market ◽  
Hedge Funds ◽  
Stock Exchange ◽  
Equity Markets ◽  
Market Volatility ◽  
Seminal Paper ◽  
Content Type ◽  
The Us ◽  
Market Capitalisation ◽  
Swiss Stock Exchange

Subject Crypto market dynamics. Significance The market capitalisation of cryptocurrencies fell to below 250 billion dollars on April 6 from a record high of 827 billion on January 7. Greater regulation, coupled with more volatile global equity markets and the April 15 US tax filing deadline had prompted substantial cryptocurrency selling. However, the valuation has since recovered to more than 325 billion dollars, supported by the US deadline passing, a seminal paper on April 10 by Blossom Finance declaring bitcoin investment allowable under Sharia law and, most importantly, interest in uses for blockchain continuing to grow. Impacts Many crypto hedge funds have shut, many ICOs have failed and this will continue, but among the blockchain firms there will be big successes. The Swiss stock exchange plans to launch a cryptocurrency version of the Swiss franc; Switzerland will expand as an ICO hub. The rise in financial market volatility since February will intensify and persist as global trade tensions are increasing.

Financial market stability rests on steady bond yields

2020 ◽  
Keyword(s):  
Central Bank ◽  
Financial Market ◽  
Equity Markets ◽  
Central Banks ◽  
Bond Market ◽  
Market Volatility ◽  
Bond Yields ◽  
Content Type ◽  
Financial Market Stability ◽  
Bond Market Volatility

Significance Furthermore, liquidity injections by central banks are supressing bond yields. However, even a hint from major central banks that inflation is picking up faster than anticipated could roil stock markets, whose lofty valuations depend on yields remaining ultra-low. Impacts A communication blunder by a major central bank could exacerbate any bond market volatility and cause a sharp sell-off in equity markets. More transmissible coronavirus strains are reaching more nations and reigniting fears about the speed and efficacy of vaccine rollout. A record USD18tn of public and corporate debt is yielding a negative return, fuelling demand for higher-yield EM bonds and currencies. The trade-weighted dollar has fallen by nearly 4% since end-September to the lowest since April 2018; it is set to stay under pressure.

Greece's TARGET2 balance could bring broader losses

2015 ◽  
Keyword(s):  
Real Time ◽  
Euro Area ◽  
Financial Stability ◽  
Balance Of Payments ◽  
Transfer System ◽  
Government Bonds ◽  
Content Type ◽  
Greek Government

Subject Exposure of euro-area countries to Greece through TARGET2. Significance The exposure of euro-area countries to Greece occurs mainly through the assistance plans, including 53 billion euros (57 billion dollars) of bilateral loans and 131 billion euros of European Financial Stability Facility (EFSF) loans, together with about 25 billion euros of Greek government bonds held by the Eurosystem. Since the January election, Greece has been experiencing large deposit outflows and its banks are relying on the ECB's emergency liquidity assistance (ELA) facility for refinancing. The money withdrawn is partly transferred abroad, as could be inferred by Greece's Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) balance. Impacts Greece's balance-of-payments crisis is causing TARGET2 debt build-up on top of its outstanding loans and bonds. At end-February, Greece's TARGET2 balance stood at minus 91 billion euros; it is likely to have deteriorated further in March. Including Greece's TARGET2 debt, the total euro-area exposure to 'Grexit' risk amounts to 300 billion euros.

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