The Covid-19 crisis is one year old, and already, on the economic front at least, optimism is gaining ground.
The International Monetary Fund (IMF) economic growth projections, released last week, point to a strong rebound: the world economy is forecast to expand by 6% this year, led by emerging and developing Asia, which is expected to grow by 8.6%.
Continue readingCentral banks are getting closer and closer to issuing digital currencies, but this attempt to fend off the threat of cryptocurrencies raises many questions about the future of the economy.
One consequence of central bank digital currencies, which for the moment is not discussed as much as it should be, is that they could serve as “Trojan horses” for negative interest rates – and these in turn could amount to debt default by stealth.
Continue readingEmerging market assets have enjoyed robust performance despite the Covid-19 pandemic, with investors attracted by their higher yields and faster economic growth prospects in these countries.
But three headwinds could cut short their growth spurt: rising interest rates, environmental, social and governance (ESG) issues and the retreat of globalisation.
These headwinds are converging at a very delicate time for global markets, and at least two of them could persist for a long time.
Continue readingWith baby steps, the Fed and other major central banks are beginning their journey back towards some semblance of normality.
This will be a big resilience test for a financial system which, for more than a decade, has relied on repeated rounds of monetary generosity. Continue reading
The turmoil we are currently seeing in stock and bond markets is just one battle in the war that has been going on in capital markets for a long time: debt versus equity versus central banks.
Continue readingDespite good news about vaccine roll-outs, it is too early to tell when or even whether economies will fully reopen and life will go back to “normal.”
Continue readingWith news of another Covid-19 vaccine on its way and optimism rising ahead of the end-year holidays, it looks like 2021 will shape up to be much better than 2020.
But one forgotten danger could spoil the party: inflation. Price rises are far from investors’ minds, but an ‘inflation tantrum’ could have devastating effects on various countries’ economies if they are not kept in check.
By Mirela Roman
This “like-no-other” Covid-19 pandemic is clearly a dangerously unique event, with ongoing severe economic and social consequences all around the globe. Nassim Taleb has famously described the Black Swan and more recently, BIS researchers pointed to the Green Swan in reference to the impact of climate change.
But the Covid-19 Swan is quite a combination of colours. It is an ongoing emergency situation, with fear often overcoming hope while anxiety heightens amid a decline in living standards.
Central banks are again under the limelight. With Mark Carney’s departure as governor of the Bank of England next month, Boris Johnson could try to seize the opportunity to curtail the central bank’s independence.
This should not come as a surprise. Already, Johnson’s soulmate from across the ocean, Donald Trump, has been making noises about the Federal Reserve being too independent (or rather: insubordinate) for his liking.
So, if these two authoritarian populists go for central banks, what are their chances of bringing them under their rule?
It is becoming increasingly difficult for central banks to surprise the markets with good news. No matter how dovish they are, investors expect them to be even more dovish still. This financial repression has facilitated the rise of populist politicians, who threaten to bring the end of central banks’ independence.