UK bond market review – July 2016

Expectations of monetary easing, combined with strong demand for safe-haven investments, drove down UK bond yields during July. However, investors were surprised – and, in some cases, disappointed – by the Bank of England (BoE) policymakers’ unexpected decision to leave UK interest rates unchanged at 0.5% at their July meeting. A cut in rates, accompanied … Continue reading “UK bond market review – July 2016”

Global markets rebound in July

Global equity markets generally rose during July. Concerns about the UK’s decision to leave the European Union (EU) appeared to subside as the month progressed and investors’ appetite for equities was boosted by hopes that central banks in the UK, Europe, and Japan will introduce fresh stimulus measures. In the UK, however, investors were surprised … Continue reading “Global markets rebound in July”

The economic future of the Euro area

The falls in Euro-area share prices over the last year have been led by big falls in commercial bank shares. In part, this reflects slow progress in dealing with the bad debts and poor conduct of the pre-crash period, leaving many of them with low levels of cash and capital to absorb past losses. It … Continue reading “The economic future of the Euro area”

Does the world need more quantitative easing?

Should central bankers be contemplating more quantitative easing? It is clear that many still are: even though the Bank of England kept rates on hold at this month’s policy meeting, many are anticipating further stimulus in August. The ECB and Bank of Japan continue to print money, while the Federal Reserve shows itself reluctant to … Continue reading “Does the world need more quantitative easing?”

The negative interest rate experiment

The start of this year has seen a continuation of central banks’ policy experimentations, with Japan joining the eurozone, Switzerland, Denmark and Sweden in employing negative interest rate policies (NIRPs). NIRPs can refer to economies’ base interest rates, or more specifically to negative central bank deposit rates (i.e. the interest rates that central banks pay … Continue reading “The negative interest rate experiment”

Paying to lend? The failure of negative interest rate policy

We look at the economic and market impact of negative interest rate policy and where policymakers might head next. It has been a universal truth that borrowers need to incentivise lenders to provide loans, normally via the promise of the return of capital (hence “My word is my bond”) with additional compensation in the form … Continue reading “Paying to lend? The failure of negative interest rate policy”

Now is not the time for knee-jerk reactions

Much has happened since the referendum. Politicians have come, gone, not gone and we have a new Prime Minister. Markets have whipsawed. All of this has led to a whiff of panic. It is time for a bit of calm and for politicians to chart a safe course for the country.   Some have made … Continue reading “Now is not the time for knee-jerk reactions”

Next stop, stagflation?

Stagflation is a poisonous mix of slow growth, inflation and unemployment. What causes it, and how to deal with its effects, divide opinion among professional economists. It gives central bankers and policy makers a severe headache and because it is difficult to combat, stagflation builds anxiety and uncertainty in financial markets, which is bad for … Continue reading “Next stop, stagflation?”

China outperforms, but is this economy a one-trick pony?

Chinese GDP growth was better than expected in the second quarter, but appears overly reliant on one engine of growth: fiscal stimulus. Chinese GDP growth was unchanged in the second quarter of the year, at 6.7% year-on-year, though it accelerated in quarter-on-quarter terms to 1.8%, from 1.2% previously. The reading, along with other activity data … Continue reading “China outperforms, but is this economy a one-trick pony?”

Flash UK PMI signals post-referendum slump

Private survey data suggest the UK economy has slumped since the result of the EU referendum was announced, increasing the chances of an interest rate cut in August. Markit has released a one-off set of surveys of its purchasing managers’ indices (PMIs), which suggest that both the manufacturing and the services sectors are now contracting … Continue reading “Flash UK PMI signals post-referendum slump”

Emerging markets could provide real diversification

Investors have generally been exhorted to ‘look internationally’ to compensate for domestic uncertainty, but is that really the best option? After all, given that the pound has slumped, investors are paying a lot more for, say, US or European assets than they were just a few short months ago. Looking internationally has a number of … Continue reading “Emerging markets could provide real diversification”

Brexit boosts emerging markets

Emerging equity markets generally performed better than developed markets during June. Although the UK’s decision to quit the European Union (EU) exerted heavy downward pressure on share prices around the world, many developing markets enjoyed relatively strong performance. Sentiment towards emerging markets was boosted by supportive statements from leading central banks in the wake of … Continue reading “Brexit boosts emerging markets”

Brexit raises questions over EU’s future

In Europe, June was dominated first by speculation over the possible outcome of the UK’s referendum on its future membership of the European Union (EU), and then by the unexpected news that a slim majority of UK voters had opted to quit Europe. The shock result plunged global financial markets into a state of heightened … Continue reading “Brexit raises questions over EU’s future”

Yen’s surge hits Japan’s exporters in June

Having fallen heavily in the wake of the UK’s shock decision to quit the European Union (EU), Asian markets experienced a slight rebound as June drew to a close. Japan’s Prime Minister, Shinzo Abe, attended an emergency meeting between the Government and the Bank of Japan (BoJ) to discuss the implications of the UK’s exit … Continue reading “Yen’s surge hits Japan’s exporters in June”