Regulation / banks

Money for nothing…

Who doesn’t know the Dire Straits song „Money For Nothing“? Reality even caught up with us. For debts there is even money back today. In this logic, debts have become an asset and no longer a burden. This of course reverses many laws in the real economy and the financial markets. In the US, companies with new debts are buying back shares because they expect financing advantages in view of the low interest rates for corporate bonds. In Germany, you can soon get real estate loans for free. Low interest rates are of course also a reason for rising house prices. However, the favourable interest rate environment does not mean that the road to home ownership has in principle become easier and more affordable. Rather, the challenges have changed. The hurdle that households have to overcome today when buying their own home is no longer the viable monthly burden. Since…

US Federal Reserve leaves everything open, but interest rates should fall

Many market participants hoped for further information from the central bank conference in Jackson Hole as to whether the latest adjustment in the middle of the economic cycle would not develop into a full-blown key rate reduction cycle after all. Fed Chairman Powell, however, did not want to commit himself and gave no concrete indications of the future path of monetary policy. On the other hand, he was open to the idea that there was no manual for dealing with the current trade conflict. This in turn points to a high degree of uncertainty in the FOMC itself. In my view, it is relatively certain that key US interest rates will continue to fall in the course of the year. The exciting question, however, is whether further rate cuts will have a positive effect on the real economy at all, or only boost the financial markets. Political pressure on the…

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…

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