Attention will turn to policy scope to fight recession

2019 ◽  
Keyword(s):  
Federal Reserve ◽  
Equity Markets ◽  
Central Banks ◽  
Equity Market ◽  
Bond Markets ◽  
Content Type ◽  
China Trade ◽  
The Us ◽  
Equity Funds ◽  
Global Equity Markets

Significance The dovish U-turns by the US Federal Reserve (Fed) and the ECB, which were withdrawing monetary stimulus as recently as end-2018, are accentuating concerns that the leading central banks lack the firepower to fight the next recession. Creating confusion, global equity markets are surging but bond markets are growing more pessimistic. Impacts The Chinese equity market is surging as investors anticipate some form of US-China trade deal, but any boost is likely to be temporary. US equities have rebounded this year, but the outflows from US equity funds that began in October will continue and may rise amid anxiety. Chinese growth was slowing even before the tariffs and worries are rising that this, more than trade, will increasingly hit world growth.

Normalisation threatens Emerging Europe’s bond markets

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Central Banks ◽  
Capital Inflows ◽  
Bond Markets ◽  
Content Type ◽  
The Us ◽  
Asset Purchases ◽  
Investment Grade

Subject The risks to Emerging Europe’s bond markets from the removal of monetary stimulus. Significance The IMF has warned that the withdrawal of monetary stimulus by the US Federal Reserve (Fed) is likely to reduce capital inflows into emerging market (EM) economies. Emerging Europe is particularly vulnerable, thanks to the additional risks posed by the reduction of asset purchases by the ECB. Corporate bonds are most at risk because of the rapid compression in spreads on sub-investment grade debt, at their lowest levels since the financial crisis. Impacts Hawkish signals from central banks and US tax cuts are taking the benchmark ten-year US Treasury yield to its highest level since mid-March. However, dollar weakness will ease some of the strain on EM currencies and local bonds. With low core euro-area inflation reducing pressure to end QE, the ECB is unlikely to raise interest rates before 2019.

Mixed bond market moves raise policy-tightening risks

2018 ◽  
Keyword(s):  
Federal Reserve ◽  
Yield Curve ◽  
Emerging Market ◽  
Bond Market ◽  
Bond Markets ◽  
Short Term ◽  
Industrial Firms ◽  
Content Type ◽  
The Us ◽  
Equity Funds

Significance Its two-year equivalent, which is more sensitive to US monetary policy, has risen faster, as expectations have increased that the US Federal Reserve (Fed) will raise rates at least twice more this year. The gap between ten- and two-year yields is the narrowest since 2007, suggesting that bond markets expect aggressive short-term policy tightening to dampen growth and inflation in the longer term. Impacts The VIX Index, which anticipates S&P 500 equity volatility, is settling near its three-year average of 15, having touched 50 in February. The dollar has risen by nearly 2% since April 16 despite bearish bets continuing -- suggesting that its slump may have run its course. The ‘search for yield’ will draw investors to emerging market bond and equity funds; 2018 inflows so far are nearing 73 billion dollars. The US yield curve is close to inversion, traditionally signposting recession, but the backdrop of ultra-low rates obscures the outlook. US industrial firms including Caterpillar report solid first-quarter earnings but warn of already teaching a peak, worrying investors.

Central Europe's slow rate rises will aim at growth

2021 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Slow Rate ◽  
Emerging Market ◽  
Central Banks ◽  
Content Type ◽  
The Us ◽  
Equity Funds ◽  
Us Dollar ◽  
The Eu

Significance The MNB’s first rate rise in a decade responds to headline inflation rising to the highest rate in the EU. The US Federal Reserve (Fed) decision to bring forward raising interest rates to 2023 is putting emerging market (EM) assets under increasing strain and heaping pressure on Central Europe’s central banks to begin tightening. Impacts Capital markets’ ‘hunt for yield’ will bolster EM bond and equity funds despite concerns about the Fed’s withdrawal of stimulus. The vast majority of investors are behaving as if the current surge in inflation will prove transitory. A sharp deterioration in sentiment may follow if price pressures last longer than expected. Brent crude’s rise to its highest level since October 2018, despite the recent rally in the US dollar, will fuel inflationary pressures.

Leading central banks mould investor sentiment

2015 ◽  
Keyword(s):  
Central Bank ◽  
Federal Reserve ◽  
Developing Economies ◽  
Investor Sentiment ◽  
Oil Prices ◽  
Central Banks ◽  
Euro Crisis ◽  
Content Type ◽  
The Us ◽  
Country Specific

Significance In the worst start to a year for US equities since 2008, the benchmark S&P 500 index fell 0.7% during the week ending January 10. December's employment report showed US non-farm payrolls rising by a robust 252,000, but average hourly earnings declined, accentuating deflationary fears. The dollar continued to strengthen against the euro on concerns about a possible euro crisis over Greece and the introduction of sovereign QE by the ECB. With the US Federal Reserve preparing to raise rates, investor sentiment remains fragile. Impacts The tug-of-war between central bank largesse and country-specific, geopolitical and economic risks will become more intense. Markets will focus on renewed fears of 'Grexit' and on concerns about German opposition to an ECB sovereign QE programme. The relentless oil prices slide, exacerbated by the dollar's strength, will put further strain on EM assets. The ruble is likely to weaken further, increasing the scope for contagion to other developing economies.

US rates rift will fuel financial market volatility

2019 ◽  
Keyword(s):  
Financial Markets ◽  
Bond Markets ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Content Type ◽  
Us Economy ◽  
China Trade ◽  
The Us ◽  
Investment Grade ◽  
Global Growth

Subject Financial markets outlook. Significance The decision of the US Federal Reserve (Fed) on September 18 to lower its main policy rate while not assuring investors that it will continue to loosen monetary policy is exposing divisions within the Federal Open Market Committee (FOMC), and between the Fed and bond markets. The ‘hawkish cut’ came with three dissensions, reflecting the disconnect between the resilient US economy and the deterioration in the global growth outlook. Impacts Cautious investor optimism that a US-China trade truce will be struck is fuelling US equity gains, but a substantial deal seems unlikely. The Brent oil price fell back within days following the drone attacks on Saudi Arabian oil facilities, but more short spikes are possible. Almost one-third of investment-grade government and corporate bonds are negative yielding; those with zero lifetime coupon are riskiest.

SNB move will accentuate bond-equity divergence

2015 ◽  
Keyword(s):  
Euro Area ◽  
Yield Curve ◽  
Equity Markets ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Bond Yields ◽  
Content Type ◽  
Sovereign Bond ◽  
Advanced Economies ◽  
The Us

Significance The move mainly aims to pre-empt the widely anticipated launch of a sovereign quantitative easing (QE) programme by the ECB on January 22. However, it will accentuate divergences between bond and equity markets. Sovereign bond yields for most advanced economies are falling to new lows and are increasingly negative at the shorter end of the yield curve, because of deflation fears and lacklustre growth outlooks. Yet equity markets are hovering near record highs, buoyed by the US recovery and expectations of further monetary stimulus in the euro-area. Impacts Bond markets will be driven by deflation fears, while equity markets, especially US stocks, will be buoyed by Goldilocks-type conditions. Market expectations that the ECB will launch a sovereign QE programme will make bond yields fall further. Bond yields will be suppressed by investor scepticism about the ECB's ability to reflate the euro-area economy.

Foreign holdings of EM debt are a key global risk

2015 ◽  
Keyword(s):  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Central Banks ◽  
Foreign Investor ◽  
Bond Markets ◽  
Global Risk ◽  
Content Type ◽  
China And India ◽  
China’S Economy

Subject Risks surrounding increased foreign participation in EM bond markets. Significance The rise in the dollar in anticipation that the Federal Reserve (Fed) will start hiking interest rates next month is putting emerging market (EM) currencies under renewed strain. This stress is testing the resilience of EM bond markets, many of which, such as Malaysia and Indonesia, have high levels of foreign investor participation, or, like China and India, are seeking to attract more. Impacts Monetary policy divergence between the Fed and other leading central banks will put further upward pressure on the dollar. A strengthening dollar will extend oil's 6.6% price drop since November 3, undermining sentiment towards EMs. The composition of foreign holdings (institutional money versus flightier capital) will be key to gauging the vulnerability of EM debt. The largest source of vulnerability in EMs will remain the threat of a harder-than-expected landing for China's economy.

Inflation will worry but not derail financial markets

2021 ◽  
Keyword(s):  
Financial Markets ◽  
Federal Reserve ◽  
Bond Markets ◽  
Content Type ◽  
The Us ◽  
Sustained Increase

Significance The US Federal Reserve (Fed) is largely unperturbed by rising inflation. Bond markets concur, but some investors fear that this could prove complacent -- and costly. Impacts The price of bitcoin fell by 30% since mid-April to USD20,000, partly due to doubts of whether the token is maturing into a stable asset. US banking stocks have surged by over 70% since the vaccine breakthrough on average; strong first-quarter earnings will fuel further upside. Markets have confidence in the Fed, but investors’ fears of a more sustained increase in prices, and of the Fed falling behind, will rise.

Hungarian forint is increasingly vulnerable to attack

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
External Environment ◽  
Central Banks ◽  
Content Type ◽  
China Trade ◽  
Bond Yield ◽  
The Us ◽  
National Bank ◽  
Global Growth

Subject Central banks’ policy dilemmas. Significance The National Bank of Hungary (MNB) remains extremely reluctant to raise interest rates despite increasing pressure on the forint. While growth in the euro-area is likely to remain weak this year, strengthening the case for rates to remain on hold, a more supportive external environment, underpinned by an easing of US-China trade tensions, would accentuate the policy dilemmas confronting Central Europe’s central banks, especially given rises in inflation. Impacts Germany’s still-negative ten-year bond yield has risen from record lows in September as markets become less pessimistic about global growth. Markets expect Hungarian monetary policy to remain very dovish, as the domestic twelve-month bond-yield’s end-October turn negative shows. The US S&P 500 index surged by nearly 30% last year and if US-China trade tensions ease slightly this should help it to maintain momentum.

Koruna is likeliest in Central Europe to rise further

2017 ◽  
Keyword(s):  
Growth Rate ◽  
Czech Republic ◽  
Developing Economies ◽  
Equity Markets ◽  
Central Banks ◽  
Bond Markets ◽  
The Czech Republic ◽  
Content Type ◽  
National Bank ◽  
Positive Sentiment

Subject The rally in Central Europe’s currencies despite the dovish stance of most of the region’s central banks. Significance The zloty has shot up against the euro this year; the koruna has strengthened sharply in response to the removal by the Czech National Bank (CNB) of its euro rate cap; even the forint has firmed by 2.2% against the euro since mid-December. Central Europe’s currencies are benefiting from reflationary pressures (particularly in the Czech Republic), inflows into equity and local bond markets, and positive sentiment towards developing economies. Impacts The 40-bp fall in 10-year US Treasury yields since mid-March will buoy world equity markets and encourage more exposure to EM ‘risk assets’. The 6% fall in the dollar index against a basket of currencies since early January is contributing to sharp euro and yen rises. Germany’s economy is performing strongly, in the first quarter enjoying its fastest growth rate in a year. This is underpinning expansion in Central Europe’s economies, particularly in Hungary and the Czech Republic.

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