Investors will diversify beyond usual ‘safe’ assets

2020 ◽  
Keyword(s):  
Euro Area ◽  
World Trade ◽  
Iron Ore ◽  
Emerging Market ◽  
Equity Market ◽  
Corporate Debt ◽  
Fiscal Stimulus ◽  
Content Type ◽  
The World ◽  
Investment Grade

Significance During September’s technology-led equity market sell-off, ten-year US Treasury yields barely budged, while gold fell by nearly 5% and has stagnated since. Investors are turning to less established hedges, including emerging market (EM) and investment grade corporate debt. Impacts The euro-area services PMI fell to a five-month low in October as measures to curb COVID-19 cases raise fears of a double-dip recession. China is leading the world trade recovery; the price of iron ore, the key steelmaking ingredient, has soared by about 50% since early May. The VIX Index, Wall Street’s ‘fear gauge’, has gained 10.2% since October 9, partly due to little progress passing more fiscal stimulus.

China and 'Grexit' risks weigh on EMs globally

2015 ◽  
Keyword(s):  
Stock Market ◽  
Euro Area ◽  
Emerging Market ◽  
Listed Companies ◽  
Equity Market ◽  
Foreign Investors ◽  
Content Type ◽  
Emergency Measures

Significance This month, 3 trillion dollars had been wiped off the value of all listed companies since a seven-year high on June 12, undermining confidence in the government's ability to steer the market. These developments along with the lingering risk of a Greek exit ('Grexit') from the euro-area, despite the provisional agreement reached on July 12, are taking a toll on emerging market (EM) asssets more broadly. Impacts The emergency measures aimed at stemming the sell-off in Chinese equities will help stabilise the stock market. Foreign investors' exposure to China's retail-based equity market is likely to remain limited. The renewed Brent crude price fall, down 14.2% since early May, will pressure oil exporters' currencies while benefiting oil importers.

Volatility undercuts bitcoin’s effort to go mainstream

2021 ◽  
Keyword(s):  
Market Structure ◽  
Euro Area ◽  
Market Price ◽  
Central Banks ◽  
Equity Market ◽  
Bond Yields ◽  
Fiscal Stimulus ◽  
Content Type ◽  
Bubble Bursting ◽  
Dot Com

Significance Bitcoin is benefiting from the growing institutionalisation of the investor base for digital tokens, and the appeal of crypto-assets as a hedge against the debasement of currencies by money-printing central banks. Having reached an all-time high of USD41,823 on January 8, bitcoin, the world’s most widely traded cryptocurrency, has since lost nearly 20%. Impacts Wild price swings and the lack of a central market structure will limit bitcoin’s ability to challenge gold as a hedge against inflation. The S&P 500 equity market price-to-earnings ratio is near its highest since the 2000 dot-com crash, raising fears of the bubble bursting. The prospect of more aggressive US fiscal stimulus is driving a sell-off in treasuries, raising fears of a disorderly rise in bond yields. Europe’s COVID-19 resurgence raises the prospect of more stimulus, but also the scope for more tension about this among euro-area states.

Jackson Hole meet risks intensifying investor concerns

2017 ◽  
Keyword(s):  
Emerging Markets ◽  
Euro Area ◽  
Content Type ◽  
Risk Premiums ◽  
Local Currency ◽  
The World ◽  
Jackson Hole ◽  
Investment Grade ◽  
Central Bankers ◽  
Double Digit

Significance The dollar index has fallen by about 10% since early January, to its lowest since April 2016, under the strain of US President Donald Trump’s political woes and robust euro-area economic activity. The Jackson Hole gathering is unlikely to provide respite. Moreover, while the dollar slide is buoying sentiment towards US equities and emerging markets (EMs), it is dragging euro-area inflation lower, creating a dilemma for the ECB as it considers withdrawing stimulus. Impacts Dollar weakness will help emerging markets (EM) rally, with EM stocks surging and EM local currency debt delivering double digit returns. The compression of risk premiums on non-investment grade US corporate debt (‘junk’) to its lowest since 2008-09 will concern investors. ECB monetary meetings are on September 7 and October 26; details of QE withdrawal could come at the latter meeting, weighing on markets. Jackson Hole may offer clues on the extent to which central bankers across the world will coordinate on monetary policy over the next year.

The World Economy

2003 ◽  
Vol 185 ◽  
pp. 9-16
Keyword(s):  
Latin American ◽  
Euro Area ◽  
World Trade ◽  
World Economy ◽  
Oil Industry ◽  
Private Sector Investment ◽  
Percentage Points ◽  
The Us ◽  
The World ◽  
Dollar Depreciation

The outlook for world growth this year has deteriorated since April, due to a sharp contraction in world trade in the first quarter of the year and failure to sustain the revival in private sector investment seen in the fourth quarter of 2002. We have as a consequence revised our projections for world growth this year down by ¼ percentage point. This reflects sharp downward revisions of ½–¾ percentage points in the Euro Area and Canada, both of whose exchange rates have continued to appreciate in effective terms, while the outlook for the US and Japan is broadly unchanged. Growth in Japan and the Euro Area stagnated in the first half of 2003, with recessions in Germany, Italy, the Netherlands and Austria appearing likely. The US and Canada, on the other hand, continued to expand, albeit more slowly than in the second half of 2002. Following two years of exceptional weakness, Latin American growth has started to revive, although Venezuela is still suffering from the 2 month stoppage in the oil industry earlier this year and Argentina has lost competitiveness due to a strong appreciation against the dollar. Growth has slowed in several Asian economies, notably South Korea, but China continues to expand rapidly, spurred by the competitiveness impact of the dollar depreciation and infrastructure preparations for the 2008 Olympics. This has helped sustain export growth from the rest of Asia despite the more widespread slowdown in world trade.

EU bonds will rival German Bunds as a safe asset

2021 ◽  
Keyword(s):  
Euro Area ◽  
Safe Haven ◽  
Content Type ◽  
The World ◽  
The Creation ◽  
Over Time ◽  
The Eu

Significance This could create an alternative benchmark safe-haven asset to rival German Bunds within the region. As part of its issuance plans, the EU intends to issue at least EUR50bn in green bonds annually, which is likely to make it the world’s largest issuer of these bonds. Impacts The increased importance of EU bonds over time will help to support the euro's value and could eventually put pressure on the dollar. The EU is leading the world in green bond issuance, but the risk of spurious environmental claims (‘greenwashing’) must be managed. The creation of new EU bonds will help reduce the funding costs of riskier euro-area members such as Italy.

Growth Prospects for Advanced and Emerging Market Economies

2016 ◽  
Vol 16 (4) ◽  
pp. 599-614 ◽  
Author(s):  
Dominick Salvatore
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Fiscal Stimulus ◽  
Secular Stagnation ◽  
Market Economies ◽  
The World ◽  
Growth Prospects

This paper examines the reasons for the slow growth in the advanced countries since the recent global financial crisis, the slowdown in growth or recession in emerging market economies, the danger that the world may be drifting toward a new global financial crisis, and that it may face even secular stagnation. The paper concludes that growth is likely to remain slow for the rest of this decade in advanced countries and to continue to decline in emerging market economies. It also examines the danger that with interest rates at the zero-bound level in advanced nations, a new financial bubble may be in the making as investors, in search of returns, undertake excessively risky investments, and that this may lead to a new global financial crisis. It is not certain, however, that the world is facing secular stagnation and, if so, that a new massive fiscal stimulus (as advocated but some) would prevent it or correct it.

German shift on austerity would risk 'wrong' lessons

2015 ◽  
Keyword(s):  
Euro Area ◽  
Credit Rating ◽  
Bond Yields ◽  
Trade Surplus ◽  
Fiscal Stimulus ◽  
Content Type ◽  
Black Spots ◽  
Angela Merkel ◽  
Deficit Financing ◽  
The Government

Significance Chancellor Angela Merkel faces a rising tide of euro-area members in favour of a policy shift away from austerity and possibly towards more favourable debt deals for euro-area black spots. Adding to the pressure for change, her own voters may prefer a slower pace of debt reduction: German government debt has already been falling as a percentage of GDP -- from over 80% in 2010 to under 77% at the end of 2014 -- and debt is starting to fall in absolute terms as well. The government has delivered enough stabilisation (ie, austerity) and growth to tame the 2009-10 debt surge and maintain its AAA credit rating, but is now over-achieving in terms of its own tough targets because the greater-than-expected fall in debt interest costs is pushing the budget into surplus. Some modest spending adjustments look likely to curb this windfall surplus, yet many will argue that more could be done to re-energise the sluggish economy -- and boost the euro-area. Impacts The plummeting euro will provoke another rise in German exports (already near 50% of GDP) and tensions over Germany's bulging trade surplus. While a fiscal stimulus and/or higher wage payments could address these tensions and raise imports, there is no sign of such action. Germany's critics are gathering support to end austerity, to the point of ignoring the risks of deficit financing and reneging on debts. Ultra-low German bond yields, encouraged by the prospective supply fall, are dragging down euro-area yields, delivering wider benefits.

Weaker euro-area may affect Emerging Europe

2016 ◽  
Keyword(s):  
Euro Area ◽  
Credit Rating ◽  
Emerging Market ◽  
Corporate Bond ◽  
Bond Yields ◽  
Content Type ◽  
Central Eastern Europe ◽  
Political Risks ◽  
Government Bond Markets ◽  
The Uk

Subject The fallout in Central-eastern Europe (CEE) from Brexit. Significance While CEE government bond markets are being supported by investor expectations of further monetary stimulus in response to the uncertainty stemming from the UK decision to leave the EU ('Brexit'), the zloty is suffering from both its status as one of the most actively traded emerging market (EM) currencies and concerns about the policies of Poland's new nationalist government. A sharp Brexit-induced slowdown in the euro-area economy would put other CEE currencies and equity markets under strain. Impacts The ECB's full-blown QE is helping keep government and corporate bond yields in vulnerable southern European economies historically low. Uncertainty generated by Brexit reduces the scope for further US interest rate hikes later this year, lifting sentiment towards EM assets. The Brexit vote will increase investors' sensitivity to political risks, auguring badly for Poland. Poland has already suffered a downgrade to its credit rating mainly as a result of the interventionist policies of the PiS government.

US rates may rise but economic risks are rising faster

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Euro Area ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Content Type ◽  
Political Risks ◽  
Bond Yield ◽  
Treasury Bond ◽  
The Face ◽  
Equity Index

Subject Global equity market trends. Significance The four main US stock market indices began March at record highs, including the benchmark S&P 500 index at 2,400. Driven by expectations of stimulative and pro-business policies under the new US administration, equity markets are flying in the face of signals from the Federal Reserve (Fed) that interest rates will rise three times this year. The probability of a hike at the Fed’s March 14-15 meeting has risen above 80% on growing price pressures and stronger economic data, buoyed by hawkish comments from several Fed governors, including those who were previously dovish. Impacts Despite the post-election US bond market sell-off, around one-third of the stock of euro-area sovereign debt remains negative yielding. The gap between the two-year US Treasury bond yield and its German equivalent has widened to a record, a sign of rising monetary divergence. The euro lost 2% against the dollar in February as political risks escalated in the euro-area, centred around the French election. The emerging market MSCI equity index is 8.6% up this year, after losing 4.5% from November 9 to end-2016, a sign of higher confidence.

Another rating upgrade is likely for Hungary soon

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Banking Sector ◽  
Credit Rating ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Central Banks ◽  
The Philippines ◽  
Content Type ◽  
Investment Grade

Significance Hungary thereby regains investment-grade status, albeit at the lowest level, from being downgraded to 'junk' because of doubts about the government's policies and the high public debt burden. Hungary's improving creditworthiness, underpinned by its current account surplus and deleveraging in the banking sector, contrasts with the increasing strain on Poland's credit rating. Political risk has become a major driver of investor sentiment towards emerging markets. Impacts Emerging market assets have become more vulnerable as investors reprice US monetary policy. Futures markets are now assigning a 51% probability to another rise in US interest rates at or before the Federal Reserve's July meeting. Central Europe's government bond markets are being supported by the persistently dovish monetary policy stance of its central banks. This contrasts with Latin America, where inflationary pressures are forcing many central banks to raise rates. Brazil, Turkey, Poland and the Philippines are among several countries where political uncertainty is a key determinant of asset prices.

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