Disruptions and dislocations associated with COVID-19 mean current economic data may not be a reliable guide to the future. But by turning to the past, we find compelling evidence that inflation regime change is accelerating.
A single-minded approach to price stability is under threat as policymakers start to focus on what are—arguably—more pressing concerns.
Technology is advancing at a rapid pace, exerting downward pressure on prices
Central banks are being forced to address many challenges—inequality, climate change, and debt management to name but three.
Widespread lockdowns have resulted in record output declines and soaring debt across the euro area. But the political response to the COVID-19 crisis may be positive for the European integration project—and for euro-area bond markets.
Developed-market (DM) household savings recorded a significant gain last year, with an increase equivalent to 10% of combined gross domestic product (GDP).
Italy’s new prime minister, Mario Draghi, has a well-earned reputation for turning around difficult situations. But can he reverse Italy’s relative economic decline? And what does his program mean for Italian bond yields?
Despite questions over financing the European Union’s (EU’s) new Green Deal, the green transition is now under way.
After a difficult winter, we expect the global economy to rebound strongly next year. But structural headwinds remain. Will the post-pandemic bounce trigger a durable and broad-based global reflation?
A fresh round of lockdowns means a difficult winter lies ahead for the euro area. But three factors caution against excessive pessimism.
The Brexit negotiations are growing more adversarial with no signs of agreement on key issues. The most likely outcomes are now the hardest and most disruptive Brexit scenarios—leading to further potential weakness for the UK’s currency.
A wave of policy support to stabilize the world economy has left developed nations with a growing public debt load. What path will governments follow to address the issue? History offers several debt-reduction templates.
After four days of intense negotiations, EU leaders have reached agreement on a €750 billion recovery fund to help repair the economic damage from COVID-19. It took several concessions to EU creditor countries to break the deadlock. As expected, total grants in the deal have been reduced to €390 billion from an original €500 billion proposal.
Reaching a mutually beneficial Brexit deal has so far been beyond the reach of UK and European Union (EU) negotiators. Now that COVID-19 has struck, can they avoid a damaging split?
COVID-19 is triggering a new era of central banking. We believe this will play out just as powerfully in the euro area as elsewhere.
COVID-19 has supplied the catalyst for a secular change in the role of central banks. Providing governments with ammunition to fight the virus is now the overriding goal, and this means keeping bond yields pinned close to zero for the foreseeable future.
The coronavirus has exposed the European Union’s (EU’s) fault lines. For now, European Central Bank (ECB) bond purchases should hold things together. But ultimately, national governments will need to take some tough decisions to secure the EU’s future.
Policymakers cannot avert a big near-term economic hit. But they can build the foundations for recovery—if they take the right steps now.
Europe has changed swiftly from spectator to front-line combatant in the battle against the coronavirus. The potential damage from its spread is severe, but European policymakers are reacting robustly to the threat.
The coronavirus is dominating the news and sparking panic in markets. We believe the options for policymakers are clear—but will they implement them?
At long last, the UK has left the European Union (EU). But now tough and unpredictable negotiations lie ahead. In our view, the probability that they end in a negative short-term economic outcome is greater than 50%.
After a decisive victory in the UK’s general election, Prime Minister Boris Johnson has a strong mandate to “get Brexit done.” But the eventual shape of his Brexit deal is still far from clear.
As the People’s Republic of China (PRC) celebrates its 70th anniversary, manufacturing data shows that factories in the world’s second largest economy improved marginally in September, despite the impact of the ongoing U.S.-China trade war.
With the pound sliding to two-year lows, currency markets are signalling a higher probability of a no-deal Brexit. But the fallout from no deal would hurt the rest of Europe, too, and add to downward pressure on euro-area bond yields.
Global markets have taken heart from a truce in the trade war and signs of yet more monetary-policy stimulus. Easy money may well give a short-term lift to asset prices, but longer-term prospects look more challenging, especially for Europe.
As global growth prospects have weakened, the world of central banking has been turned upside-down. But while the US Federal Reserve (Fed) has already hinted at a change of course, the European Central Bank (ECB) is still struggling to adapt to the new reality.
Two important political developments in the UK over the last week have raised new questions about the Brexit outlook. While there’s still time for a compromise to be reached, we think the risk of the UK leaving the EU without a deal has increased.
The European Union has given Britain seven more months to sort out its exit plans. While the chaos of a disorderly Brexit has been averted for now, we think the compromise could have some unintended consequences.
Nearly three years after the UK voted to leave the European Union (EU), the deadline for Brexit is less than two weeks away and the British government is asking for more time. While it’s easy to be distracted by the ongoing chaos in Parliament,
The euro area faces another challenging year, but we see a continuation of recent soft growth as much more likely than recession. The European Central Bank (ECB) is, nonetheless, now likely to delay its first rate hike to 2020, and could also implement fresh credit-easing measures.
As we get ready to move into 2019, the macro backdrop points to a less favorable mix of growth and inflation at a time when central bank balance sheets are starting to shrink. Even if growth is simply returning to trend, the year ahead is likely to be more challenging—with populism and China looming as key downside risks.
We think populism is here to stay and that it will be a persistent part of the investment backdrop for many years to come.
With cabinet ministers resigning by the hour, it’s tempting to think that British Prime Minister Theresa May’s Brexit deal with the European Union (EU) is dead on arrival, and that a hard Brexit is now the most likely way forward. But some form of soft Brexit is still the most likely scenario, in our view.
While Italy’s bond yields have risen, investors have so far reacted relatively calmly to the rising probability of a populist Italian government. Based on the fundamentals, the potential downside scenario looms larger than markets seem willing to consider.
Economic trends clearly point toward higher inflation and interest rates ahead, which will likely make capital markets more volatile. Based on recent headlines, politics seems likely to add fuel to this fire.
As the European Central Bank (ECB) moves to reduce monetary stimulus to the euro area, it’s treading cautiously to avoid rattling currency or bond markets in the process. Bond purchases will be scaled back next year, but QE won’t be reversed.
The European Central Bank is widely expected to announce a winding down of its quantitative easing program on October 26. Though investors are nervous, the ECB is doing a good job preparing markets for the change.
A decade ago, we got the first warnings that the US subprime crisis would go global. Since then, monetary policy has pushed deep into unconventional territory. How will it respond as the backdrop begins to look more “normal”?
Economic insecurity, social insecurity and political ineffectiveness: these developments have fed a resurgence of populist policies in many regions of the world. We think there’s potential for major impacts on global capital markets.
Populism is here—and it isn’t going away. The ideology can come from either side of the political spectrum, and it can have a big impact on policy, the macroeconomic landscape and—ultimately—how we invest today.
Financial markets will welcome the election of centrist, pro-European Emmanuel Macron as France’s next president. Now that Europe has avoided a major political upset, all eyes will be on the ECB and its next move.
Financial markets welcomed the result of the first round of the French elections on Sunday. Yet voting patterns and the political reality facing the next French president leave much to ponder.
British Prime Minister Theresa May has called a snap election on June 8. With only a slim majority in parliament, she hopes to strengthen her position ahead of complex Brexit negotiations.
Britain’s divorce from the EU is underway, but the complex negotiating process has just begun. We believe a mutually beneficial deal can be reached—as long as both sides focus on the risks of failure.
Fresh concerns about Greece’s debts have prompted new worries across Europe. But another compromise looks likely—European leaders can ill afford a full-blown Greek crisis amid so much regional political uncertainty.
The ECB’s decision in early December to reduce the monthly pace of its asset purchase program came as a surprise. But investors should draw considerable comfort from its commitment to maintain a “sustained presence” in euro-area markets.
Is a more active fiscal policy really the answer to what ails the global economy? And has the great monetary experiment finally reached the end of the road? We’re not so sure.