Stock markets

Is someone raising his ugly head?

Inflation is the spectre of financial investors. Especially those who earn their bread in the bond market can remember earlier crash phases that wiped out the price gains of many years in a short period of time. These price slumps were actually always triggered by interest rate hikes by central banks, which in turn reacted to rising inflation rates or expectations. Today, we live in times of extremely low interest rates, and monetary policy is more expansive than ever before. Fresh liquidity, which the central banks pump into the markets to support prices, creates an extreme environment. Investors are looking for returns, and they are increasingly difficult to find. Bond market, stock market, real estate, precious metals – wherever you look, prices are extremely high. The greatest danger would be an end to the expansive monetary policy and a switch by the central banks to a restrictive course. This could…

Turkish Lira: Well-known weaknesses come back into focus

  After a relatively calm period around the Turkish Lira in the past few weeks, with the USD-TRY remaining stable around 6.85 TRY, this calm has suddenly ended. For the first time since mid-May, the currency pair has left the 7.00 TRY mark and currently even the historically weak quotations from May behind. This movement is all the more remarkable as the US dollar is currently in a difficult position itself – especially compared to the situation in May – and illustrates the prevailing pressure on the lira. However, the existing domestic problems are by no means new. In spite of the relatively stable development in June and July, we had classified the constellation for the lira as fragile, as Turkey basically offers sufficient scope for attack with an economy sliding deep into recession, a clearly rising budget and current account deficit and an expansive monetary policy course of the…

Corona crisis throws the euro zone back into 2005!

The cross-border corona lockdown led to a 12.1 percent quarter-on-quarter decline in gross domestic product (GDP) in the euro zone in the second quarter. This slump is not only historically high. GDP is now even only at the level of 2005! 15 years of economic activity have been set back within only two quarters. Despite the expected recovery, some of which will be strong, it will take some time to make up for this setback. A look at the large member states, for which initial calculations or estimates are already available, also shows the drama of the corona recession. In the second quarter of 2020 all countries had to record double-digit declines in quarterly rates. The German economy was the best performer. Here, the minus was 10.1 percent, in Italy -12.4 percent, in France -13.8 percent and in Spain even -18.5 percent. These were all unprecedented declines in economic output…

USA: Corporate earnings collapse

The reporting season in the USA started last week. In the second quarter, corporate earnings are likely to have fallen by almost 50% year-on-year. This would be the sharpest drop since the 2008 financial crisis. In particular, corporate earnings in the energy and consumer goods sectors are likely to have fallen significantly. Energy companies suffered from the low price of oil, while consumer goods manufacturers felt the impact of the collapse in demand and disrupted supply chains. Airlines, car manufacturers and companies in the travel & leisure industry (hotels, cruise ships, casinos) were particularly hard hit. Many of the companies are in the red. They are partly dependent on state aid. Analysts do not expect profits to rise in any of the eleven US sectors. Even the cyclically stable utility stocks are likely to have earned less than last year. The same applies to the IT sector, where profits are…

New equity culture in Germany?

The figures recently published by the Bundesbank on the formation of financial assets are likely to surprise even experts: in the first quarter of the current year, German citizens invested a net 13.8 billion euros in shares and similar equity securities and another 7.1 billion euros in investment funds. And this despite the fact that the corona pandemic triggered historic price slumps on the stock markets. Towards the end of the winter quarter, for example, the DAX plummeted by almost 39 percent in just four weeks. Private households in Germany are traditionally considered to be rather risk-averse. Their financial assets consist primarily of bank deposits and life insurance policies. And in other crises, such as the recent financial market crisis, they have reacted to price slumps, sometimes in panic, by selling securities. There are certainly several reasons why things look different this time: For example, the financial market crisis not…

Rising debt is not currently the problem, but it may become one

The corona crisis is increasingly proving to be a severe test for the debt sustainability of the EMU states. The financial and sovereign financial crisis of the euro states is now being followed by the third crisis in only about twelve years, which is having a noticeable impact on the debt ratios of the states. In the case of Italy, the debt ratio is expected to rise to 160% of GDP by the end of 2020. In order to stabilise the debt-to-GDP ratio in the long term, the primary balance is the central factor influencing the debt ratio from the perspective of the states. Our results show that the primary balance that Italy needs to achieve in order to stabilise the debt-to-GDP ratio over the longer term rises to 3% of GDP as a result of the crisis. In recent years, Italy has consistently achieved significantly lower primary surpluses, which…

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