The announcement by the US President, Donald Trump, to levy import tariffs on steel (25%) and aluminium (10%) has made waves. Can the favourable economic environment of boom, low inflation, and gradual reduction of the supportive monetary policy be toppled?
The economic environment for Italy remains challenging. The fundamental problem is the low economic growth. Although the composition of the future government is still unclear, the party programs imply a persistent reform deadlock.
There are many factors that may affect inflation. Also, the weights of certain factors may vary across countries. Take the development of the exchange rate, for example.
Equity indices have undergone a global correction in the past days. The Dow Jones index has shed more than 10% from its January high. What is the macro-economic reason for the correction?
At the beginning of 2018, economic indicators are confirming the recovery scenario. Above all, the yields of government bonds are on the rise. Why is that the case, and what does it mean for the financial market as a whole?
2017 was an excellent year for stocks. Developed markets were up more than 16% in local currencies, emerging markets almost 28%. Read more
Capital markets recorded a positive year of 2017. The performance of the various asset classes was of the textbook variety: the higher the risk, the higher the return. At slightly more than 1%, even low-yield asset classes such as euro government bonds or US Treasuries (in USD) posted positive rates of return1). This came as a surprise seeing that many experts had expected higher yields for government bonds, which would have come with negative effects on prices.
Some ten years after the outbreak of the Great Recession, global economic growth is positive and broadly based, inflation is low in the developed economies and falling in important emerging economies, and monetary policies are very supportive, cautious, and predictable. At the same time, company earnings growth has increased significantly, and the volatilities of many asset prices are low. This environment is generally positive for risky asset classes.
Economic growth in the Eurozone has embarked on a clear upward trend. At the same time, the fear of falling wages and prices has disappeared for now. The worries over a possible break-up of the European Union have also eased. Against this backdrop, the ECB President Draghi issued a slightly more optimistic growth forecast yet again on 27 April at the press conference of the European Central Bank. This is another tiny step indicating a possible reduction of the monetary support in the medium term.
The losses on the stock exchanges and in other risky asset classes unsettle investors. The additional expansive signals sent by the central bank support markets, albeit only by a minor degree. From an economic perspective there are no convincing signs for a trend reversal. The current correction is due to permanently low growth and to the risk of further deterioration.