MADRID | The Corner | We live in a virtuous circle of low growth rates leading to expansive economic policies and low volatilities that make investors increase risk in the pursuit of profitability -which causes inflation in the financial markets (and cash becomes here the “cursed asset”), sources at JP Morgan say.
MADRID | The Corner | After being accused to send mixed signals to the markets (one British MP even compared him to an unreliable boyfriend), Bank of England’s governor Mark Carney backed off and played down the chances of raising interest rates. After all, Bundesbank’s Jens Weidmann may be right: cheap money can be as addictive as a drug.
LONDON| By Stephane Deo and Ramin Nakisa at UBS | At the time of writing, the Treasury curve is telling the potential US GDP growth rate is very low – in the neighbourhood of 1%. The 30-year real yield is at 1.09% (but dipped below 1% recently), the 10-year real yield is at a frightening 0.36%, and the 5-year-in-5-year yield, a good proxy of where the market thinks long-term growth will settle, is at 1.05% (but also dipped below 1% recently).Taking those numbers at face value, we would have to conclude that the current recovery is doomed, and that growth will level off soon at a very disappointing level.
MADRID | By Julia Pastor | The ball is now on Janet Yellen’s court after BoE’s governor Mark Carney warned investors to get ready for interest rates’ hikes. What can we expect if the US Fed follows suit?
MADRID | By J.P. Marín Arrese | Euphoria is back in the markets following the ECB substantive package. The prospect that money will flood the financial system has significantly reduced the rate differentials between the Eurozone peripheral and core countries. Squeezing the channel for overnight interbank lending has brought the Eonia to fresh lows. [Graph: Eonia’s evolution in the past year]
MADRID | By Francisco López | It is not the first time economists, analysts and authorities recently talk about a possible bubble in the debt markets. But the latest, strong drops in peripheral bonds, in all-time minimums, have prompted alarms: there is too much euphoria and fixed-income market’s last moves doesn’t make sense.
MADRID | Ofelia Marín-Lozano | Stock markets are at maximum levels, but this is somehow tricky: such levels usually cause vertigo, whereas minimum levels lead to appetence for indebtedness and need to look for higher risk alternatives for investors who seek the actual yield.
MADRID | The Corner Team | Eurozone’s banks have yet to pay back €450 billion from the 2012 long-term refinancing operation or LTRO. Executive Director in Global Cash Equity Sales at JP Morgan Hugo Anaya maintains a positive outlook and believes that even the P/E re-rating in the Euro stock exchange may continue.
MADRID | The Corner | Despite markets’ euphoric celebration of Mario Draghi’s last words, some remain skeptic about them being the panacea for inflation and the lack of credit in the eurozone. Check the graph above: 5-year swap rates show that inflation expectations have only gone from 1.21/1.24 in May to 1.28/1.24. in June. Nothing to go crazy about, huh?
MADRID | The Corner | Despite the good performance of Western equities, many values are beginning to show signs of vertigo that could lead them to correct some of the gains of the past weeks in the coming days. In addition, the fact that trading volumes are shrinking as indexes advance is a clear sign that there are investors who feel dizzy levels. Therefore, Link experts point out, we shouldn’t rule out some small reductions in the short term even if it’s in an upward trend context.