With 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.
The panic buying of essential items around the globe – from food to, fittingly, toilet paper – sparked by the spread of the COVID-19 coronavirus has been mirrored by panic selling in capital markets. It’s almost as if investors were taking cash out of stocks and bonds to buy whatever food, hand sanitiser and toilet paper they could get their hands on.
Pessimism in global financial markets has reached heights not seen since the dark days of the great financial crisis of 2007-2009, which this current crisis threatens to overtake in depth and significance. But, as news about rapid tests for COVID-19 and resilience to deal with the virus begin to multiply, could investors hope for a bottom in the capital markets’ selloff?
It is often said that money makes the world go round. Nowhere is this more ingrained than in the battles for oil, power and arms. The news of Saudi Arabia and its key allies severing connections with Qatar following the ongoing rift between the Gulf Cooperation Council (GCC) members shocked the world. Here are three theories about this issue.
If anyone was looking for more proof of how central banks’ actions are distorting the markets, here it is: investors are trying to “front-run” the European Central Bank (ECB) – in the words of analysts at Bank of America Merrill Lynch — by buying investment grade bonds.
Inflation is unlikely to flare up again as long as commodity prices remain depressed. Inflation helps countries, companies and households that have high debts to pay them off because it reduces the value of the debt, so without it the world is slowly walking into a debtors’ nightmare.
Oil prices have always had a big political component, but it seems that increasingly they also have a financial, speculative one. And if this means oil stays cheaper for longer, we may be in for a very strong economic boom.
Russia will fall into a deep recession following the ruble’s collapse and the sharp decline in the price of oil, and will drag down with it many other countries in the region this year, new forecasts from the European Bank for Reconstruction and Development (EBRD) show.