Regulation / banks

US Federal Reserve remains reasonable

US Federal Reserve remains reasonable As expected by most market participants, the US Federal Reserve has lowered its key interest rate by 25 basis points. At the same time, it ended the balance sheet reduction prematurely. Overall, the Fed has thus loosened the monetary policy environment slightly, but avoided classifying this as a trend reversal. It has thus resisted the high political pressure and continued its relatively sensible monetary policy. The statement published after the interest rate decision sounds optimistic and hardly changed. For example, the Fed has attested that economic growth has continued to be moderate and that consumer spending has increased. Market-based inflation expectations remain low. The effects of the cooling global economy and subdued inflationary pressure explain the 25 basis point cut in key interest rates. Now the developments will be „further observed“, which is a linguistic disarmament compared to the phrase „closely observed“, which usually signals…

Deutschland: Konjunktureintrübung schlägt sich zunehmend im Kreditgeschäft nieder

The economic downturn, which is affecting export-oriented German industry in particular, is increasingly affecting the business of banks in Germany. According to the ECB’s July Bank Lending Survey, for the second consecutive year the banks surveyed reported tightening up their corporate credit policies. More loan applications were rejected and the margins for riskier loans increased. Large companies were more affected. This is due to a deterioration in the situation of various companies and sectors, resulting in a decline in creditworthiness. The survey results support our assessment that the extremely dynamic growth of the credit markets in Germany will slow noticeably this year. Most recently, corporate customer loan portfolios rose by 6.1 per cent (end of Q1/2019) and private housing loans by 4.9 per cent. No further tightening of credit guidelines is planned in the corporate customer lending business for the next three months. However, the majority of banks expect demand…

The euro is not – and never will be – a lead currency

The US dollar is the world’s leading currency, a fact that serves to cement the economic dominance of the US. The US administration is increasingly exploiting this dominance. One reason why the US sanctions against Iran are so successful is the ability of the US to control international payments processing via Swift. This means that the sanctions policy adopted by the United States can also be imposed on companies from countries with no real interest in enacting this type of policy, such as Europe in the case of the Iran sanctions. For sovereignty over payment transactions entitles the US government not only to control access to the important US market but also to assert the US dollar as internationally recognized means of payment. There are of course good reasons for the dominance of the US dollar. The US is the world’s largest economy and the most important export market for…

The invisible rise in risk

The global central bank interest-rate cycle points downwards. This impacts on the yields on government bonds, which are falling worldwide. In Germany, Bunds are in negative territory, even at the long end. This only serves to make the global bottleneck in investment opportunities all the tighter. As a result, the “Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index”, which covers all bond types offering a negative yield, is now back close to the highs last seen in 2016. Irrespective of whether yield decreases arise owing to a rise in risk aversion among market players or owing to the expectation that central banks will ease their monetary policy, this boosts the relative appeal of bonds offering an appropriate positive yield. Since it is now virtually impossible to achieve positive yields with government bonds, with the exception of those at the very long end, investors will presumably increasingly focus on…

ECB: Ready to act in an emergency

At today’s meeting, the ECB adjusted its forward guidance. Whereas the message in the monetary policy statement to date has been that key Eurozone interest rates would remain at their current levels until at least through the end of 2019, this timeframe has now been pushed back to the middle of next year at the earliest. In other words, the guardians of monetary policy are factoring the current risk factors (trade dispute/ Brexit) into their overall European economic outlook. The circumspect stance of the central bank is also reflected in the revised ECB staff projections. The growth outlook has been revised downwards slightly for both the 2020 and 2021 time horizons. At the same time, Draghi was keen to avoid coming across as overly pessimistic. For example, he also pointed in this context to the positive development of the Eurozone labour market. Inflation projections were adjusted only slightly. One striking…

Wealth creation through less regulation

As the current German Bundesbank study on “Private Households and Their Finances” reveals, average net assets in Germany rose between 2014 and 2017 by EUR 18,300 to EUR 232,800. However, wealth remains unevenly distributed. The unequal distribution of wealth is more pronounced in Germany than it is in the Eurozone as a whole, but is less so than in the United States. It is interesting that above all citizens with real estate and share investments benefited from value increases. In the international comparison though, precisely these asset categories have a weak weighting: German investors are regarded as risk-averse because they avoid equities and tend to favour investments in the form of bank deposits and insurances. Moreover, German citizens more frequently rent their homes rather than own them outright. In this context, both asset categories are especially important for wealth creation: Equities, funds and the corresponding certificates contribute to the broad…

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