Brexit will accentuate global market distortions

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Global Market ◽  
Bond Yields ◽  
Equity Prices ◽  
Content Type ◽  
Us Economy ◽  
The Us ◽  
The Uk ◽  
Economic Outlook ◽  
The Eu

Subject Outlook for post-Brexit markets. Significance The UK vote to leave the EU is exacerbating distortions in financial markets. Government bond and equity prices are rising, sending contradictory signals about the global economic outlook. Yields on US and German bonds partly retraced their steps last week as initial fears about the consequences of the Brexit vote diminished. However, the yield on ten-year Treasuries remains 20 basis points (bp) lower than on referendum day, June 23, and the S&P 500 index stands close to a record high. The expanding universe of negative bond yields is fuelling investor appetite for risk assets, including equities. Impacts Markets may be underestimating the likelihood of higher US interest rates given recent signals of improvement in the US economy. Demand for safe-haven assets could stay strong, with the price of gold rising 5.6% since the referendum. Heightened uncertainty may mean that the oil price rally is over; it could even reverse given the persistent supply glut.

Central bank action will drive global equity markets

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Equity Markets ◽  
Economic Data ◽  
Equity Prices ◽  
Monetary Policies ◽  
Content Type ◽  
Market Sentiment ◽  
The Us ◽  
Us Monetary Policy

Significance This volatility is driven by expectations of further monetary stimulus in response to a slowing economy. Despite persistent concerns about the fallout from the anticipated tightening in US monetary policy and many country-specific risks, such as the standoff between Greece and its creditors, equity market sentiment remains supported by accommodative monetary policies worldwide and expectations of the US monetary policy tightening being gradual. Impacts Market volatility could increase further, as better-than-expected economic data in the euro-area vies with weaker-than-anticipated US data. Decoupling of surging equity prices and weak economic fundamentals threatens the rally's sustainability, increasing scope for volatility. This decoupling is most pronounced in China, where weak economic data prompt buying of equities in anticipation of stimulus measures. The greatest risk in equity markets is uncertainty surrounding US interest rates and their impact on emerging markets.

Market volatility endangers moves to replace LIBOR

2020 ◽  
Keyword(s):  
United States ◽  
Interest Rates ◽  
Banking Sector ◽  
Market Volatility ◽  
Content Type ◽  
Consumer Loans ◽  
The United Kingdom ◽  
Interest Rate Swaps ◽  
The Us ◽  
The Uk

Subject The transition away from LIBOR. Significance The London Interbank Offered Rate (LIBOR) has been relied upon worldwide since 1970 for setting interest rates on syndicated loans, corporate debt, consumer loans, interest rate swaps and other derivatives. Following the 'LIBOR scandal' of 2008, the UK Financial Conduct Authority took over the regulation and administration of the rate, and no manipulation has emerged since 2013. Nevertheless, the United Kingdom and United States are determined to replace LIBOR. Impacts COVID-19 could prompt the US Fed to increase its support to the repo market, exacerbating fears that SOFR is not market determined. The scale and duration of COVID-19-related economic disruptions loom over banking sector profitability. Banks will struggle to balance immediate priorities triggered by COVID-19, and the need to devote staff and funds to the LIBOR transition.

Unstable politics may make trade deals uncertain

2019 ◽  
Keyword(s):  
Financial Services ◽  
Trade Agreement ◽  
National Elections ◽  
Content Type ◽  
The Us ◽  
Ideological Divergence ◽  
The Uk ◽  
Trade Deals ◽  
Trade Partners ◽  
The Eu

Subject Politics and trade talks. Significance Understanding the factors that determine how long trade negotiations take will help businesses navigate the uncertainty, as the UK government prepares to negotiate trade agreements once it leaves the EU. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU took seven years to finalise. Less comprehensive renegotiations of international agreements can be shorter, including the US-Mexico-Canada agreement, which took less than two years. Impacts UK sectors highly exposed to the EU or United States, including automotive and financial services, face prolonged investment uncertainty. Timing of national elections, lobbying and the ideological divergence between trade partners will determine post-Brexit trade deal talks. Continued polarisation of major economies' electorates will delay or stop other global deals, including on foreign aid and climate change.

COVID-19 will hit US GDP but recovery may be V-shaped

2020 ◽  
Keyword(s):  
Market Liquidity ◽  
Economic Downturn ◽  
Content Type ◽  
The Public ◽  
Us Economy ◽  
The Us ◽  
Home Sales ◽  
The Government ◽  
National Emergency ◽  
Economic Outlook

Subject US economic outlook. Significance Before the COVID-19 outbreak, economic activity was growing at 2.0-2.5%, the stock market and employment were close to record highs, new home sales were rising and consumer spending had momentum. The immediate outlook for the US economy is now very unclear as the number of COVID-19 cases has surged above 3,800 and the virus is present in 49 states, prompting President Donald Trump to declare a national emergency on March 13. To bolster financial market liquidity and support businesses and households, the Federal Reserve (Fed) cut rates by 100 basis points to 0-0.25% on March 15. Impacts The public spending for the COVID-19 outbreak will add to the budget deficit as no party is willing to raise taxes in an election year. The Fed may cut rates more but will risk inflation if rates stay low too long; if recovery is rapid, rates may rise sooner than expected. Heavily indebted firms and individuals will seek assistance from the government, especially in the travel and entertainment industries. A sharper economic downturn will test Trump’s managerial skill as his voters expect him to be able to resolve their problems quickly.

Fed policy move will mean lower rates for even longer

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Economic Activity ◽  
Yield Curve ◽  
Balance Sheet ◽  
Content Type ◽  
Us Economy ◽  
The Us ◽  
The Impact

Significance The Fed reduced interest rates to 0-0.25% and almost doubled the size of its balance sheet to offset some of the impact of the COVID-19 pandemic on the US economy but clear signs of economic activity rebounding are now prompting the Fed to look further out. Impacts The Fed will reassure markets that there will be no rate increases under virtually any circumstances in the next few years. Eventually the Fed will consider reducing the size of its balance sheet; this will require adroit management to avoid worrying investors. There appears to be little support at the Fed for negative rates; adopting yield-curve control remains possible if the recovery disappoints.

Turkey’s new economic team acts to restore credibility

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Interest Rates ◽  
Late Stage ◽  
Emerging Market ◽  
Content Type ◽  
Finance Minister ◽  
The Us ◽  
Multiple Interest ◽  
The Eu

Significance In one of the most significant changes in direction in a major emerging market (EM) in recent years, newly appointed TCMB Governor Naci Agbal has tightened monetary policy dramatically while abandoning a convoluted system of multiple interest rates. With another technocrat, Lufti Elvan, appointed finance minister, monetary policy could be returning to normality. Impacts A Biden administration is expected to prove unaccommodating towards Turkey, especially given its purchase of a Russian air defence system. This may be leading Erdogan to extend feelers to the EU, recently promising reforms and insisting Turkey is an “inseparable” part of Europe. Anti-coronavirus vaccines’ late-stage trial results are encouraging market optimism, with the US stock market hitting a record this month.

The Effect of Quantitative Easing on Investment in the US and UK: An SVAR Approach

2018 ◽  
Author(s):  
Thomas Russell
Keyword(s):  
Interest Rates ◽  
Quantitative Easing ◽  
Structural Vector Autoregression ◽  
Bond Yields ◽  
Bond Yield ◽  
Downward Pressure ◽  
The Us ◽  
Historical Relationship ◽  
The Uk ◽  
The Impact

Following the collapse of Lehman Brothers in 2008, the Federal Reserve and the Bank of England implemented asset purchase programs to provide further liquidity to faltering markets, and to continue to place downward pressure on market interest rates. Later called Quantitative Easing, the higher asset prices and lower market yields induced by the purchases were expected to translate into lower market borrowing costs and increased investment. This project focused on estimating the effect of Quantitative Easing on real investment in the US and UK up to 2010. First, the historical relationship between bond yields and investment was estimated using a time series econometric model called a structural vector autoregression. Next, using the historical relationship between bond yields and investment, the impact of the asset purchases on investment was calculated using the bond yield changes induced by  Quantitative Easing announcements. Deviations in bond yields on Quantitative Easing announcement dates suggested an impact on investment of 5.93% in the US, and an impact of 3.37% in the UK. Moreover, both the US and UK econometric results are statistically significant. Taking into account the econometric assumptions required to estimate the impact of Quantitative Easing on investment, the results in this project should be viewed with caution. However, the results will be useful in framing future thought on Quantitative Easing as a tool to provide macroeconomic stability 

Section II. Prospects for North America and Japan

1998 ◽  
Vol 166 ◽  
pp. 35-43
Author(s):  
Nigel Pain
Keyword(s):  
Domestic Demand ◽  
Short Term ◽  
Equity Prices ◽  
Us Economy ◽  
Financial Conditions ◽  
External Demand ◽  
The Us ◽  
Year 2000 ◽  
The Impact ◽  
Economic Outlook

The US economy continued to expand strongly in the first half of this year. GDP rose by 2 per cent compared to the latter half of last year, broadly in line with the pace of growth observed throughout 1997. The unemployment rate fell to its lowest level since 1970, with private sector demand continuing to reflect the impact of the sustained appreciation in equity prices since 1994. We expect GDP growth to be a little under 3½ per cent this year. Recent events have sharply changed the short-term economic outlook for the coming months. Growth is now projected to slow significantly, with domestic demand pressures easing and external demand remaining weak. The correction in equity prices and the tighter financial conditions facing many companies should begin to exert a significant drag on economic growth, in spite of likely further relaxation in the stance of monetary policy. GDP is expected to rise by around 1½ per cent both in 1999 and in the year 2000. If credit market conditions were to tighten further, or asset prices to show a renewed decline, then the economy could well move close to outright recession by the end of next year.

Brexit will renew pressure on Swiss franc

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Financial Market ◽  
Swiss Franc ◽  
Content Type ◽  
Economic Threat ◽  
National Bank ◽  
Market Turbulence ◽  
The Uk ◽  
Private Banking ◽  
The Eu

Subject Outlook for the Swiss economy. Significance Financial market turbulence following the UK vote to leave the EU has caused sharp pound depreciation and demand for 'safe-haven' assets, including the Swiss franc. With official interest rates already negative, Swiss authorities can do little except intervene directly in the foreign-exchange (forex) market. So far, the franc has remained below the high hit in January 2015 following the Swiss National Bank (SNB)'s decision to end the currency's peg to the euro. However, concerns over the economic threat of a strong franc and the high cost of living in Switzerland will be revived. Impacts The SNB is unlikely to reintroduce the euro peg. Further economic weakness and more job losses will emerge if the franc and its cost base strengthen further. With the exception of particular niches, the movement of both commuters and businesses to cheaper EU bases may accelerate. Exceptions include sectors of specialism, such as pharmaceuticals, private banking and headquarter operations for multinationals.

Outlook for a future EU-US trade agreement is poor

2019 ◽  
Keyword(s):  
Trade Policy ◽  
Trade Agreement ◽  
Member States ◽  
Content Type ◽  
Us Economy ◽  
The Us ◽  
Near Future ◽  
The Eu

Subject EU-US trade. Significance US President Donald Trump’s ‘America First’ trade policy threatens the highly interconnected transatlantic economy. This presents a serious challenge to the EU and certain member states more than others, and resolving this tension is unlikely in the near future. Impacts Some US protectionist trade tendencies are likely to continue post-Trump. Trump's accusations that the euro is unfairly undervalued raises the (faint) prospect of an even more profound transatlantic dispute. The importance of the US economy to European firms enables Washington to enforce secondary sanctions.

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