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It is time to start worrying about the global economy and it is not the economists who cry wolf this time, but the bond market that sends an urgent signal since 2007, the year of the crisis financial world.
The US Treasury, the largest and most liquid market in the world, which is a benchmark and a haven for investors, saw the yield curve between three-month bonds and ten-year bonds.
In simple terms, this means that 3-month paper pays a higher interest rate than 10-year bonds, which is a reversal of the normal situation when investors are compensated for the risks badociated with loans more. long time.
When the treasures begin to manifest worries within the American economy, we must pay attention to Ireland, because growth is much more influenced by the US cycle than by the European economy or even by the British economy, thanks to huge investments in technology. pharmaceutical and pharmaceutical companies, according to the research of the famous NTMA economist, David Purdue.
The market move came in yesterday as traders equated a Federal Reserve policy shift that they said indicated that the central bank was more worried about the chances of a slowdown in the Fed. World economy than before and that paper yield at 3 months was a base point (1 / 100th of a percentage) more than that of longer paper.
Although the Fed kept its interest rates unchanged at its policy meeting in Washington this week, the economic outlook was turned upside down as the world's largest central bank moved from a position where it had forecast two rate hikes this year to another where no hike was expected. .
This has in turn dragged the stock markets and other financial markets down, and worries are growing that the last financial crisis is just over, we are now heading into a recession and there are few solutions, as do the central banks that saved the world from 2008 short of ammunition and ideas.
Admittedly, the difference over 3 months and 10 years is not the reference, but it is an important signal.
The measure that would really raise the hawks of the market would be a 2-year / 10-year spread that is currently positive by 10 basis points.
Whenever there has been a recession since World War II, the situation has become negative and with economic indicators and growth forecasts around the world dropping sharply, a sense of apprehension has begun to develop at the central bankers.
"Not only will they have less leeway compared to previous economic recessions, but they will face all kinds of political pressures that, in the end, could seriously dilute their independence," said Dario Perkins, chief executive officer of Global Macroeconomics. at one of the main economic council TS Lombard.
"The authorities know that the next recession will require a significant fiscal response and the only question is how will enslaved central banks become part of that transition."
Central banks have taken on most of the burden of reviving the world economy during the last financial crisis and, at the peak of the crisis, the Bank of Japan, the Federal Reserve, the European Central Bank, the Bank of England and the Swedish Riksbank held $ 15.3 billion in government bonds, about a third of the public debt of these countries.
There is no doubt that central banks have taken a lot of quick and coordinated measures, but the fact that low interest rates remain low and the prospect of even more negative interest rates discourage investors as businesses and individuals are more concerned by the economy. .
It is enough to look at Irish households whose deposits with banks exceed loans of 13 billion euros, which shows perhaps that many people are still marked by the financial crisis and do not want to get into debt again by afraid to be renewed.
The latest economic data released on Friday by the euro area yielded disappointing results and implied economic growth of only 0.2% for the bloc.
If Brexit was the main concern to keep you awake at night, it is probably time to lose even more sleep compared to the bond market. It is time to recall the words of James Carville, who led the campaign that led Bill Clinton to the White House.
"I had used to think that if there was a reincarnation, I wanted to come back as president or pope or as a .400 baseball hitter, but I would now like back as a bond market, you can intimidate everyone. "
Independent Irish
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