USA

The world continues to invest in US Dollars

The US Dollar remains by far the world’s preferred reserve currency, accounting for a share of 61.7%, but has shed a little of its importance (since spring 2015 around 4 percentage points). The Euro has recovered from the loss of confidence it experienced during the years of the EMU sovereign debt crisis, but has certainly not regained the ground it had at the beginning of the decade. The future looks set to belong to the alternative reserve currencies. Not just the Renminbi, but also the Yen could find new supporters. In my opinion, a change in the reserve currency regime away from US Dollars and thus an associated complete restructuring of the system is not on the cards in the foreseeable future. To date, President Trump’s political style has hardly had a negative effect on the allocation of currency reserves. However, the USA’s increasing indebtedness could be a long-term disadvantage,…

Massive surge in share prices in the first months of 2019

In the first few months of this year, share prices literally skyrocketed on financial markets. But as headwinds pick up, this trend is unlikely to continue unimpeded. For almost all asset classes, 2018 was not a good year. But the complete reverse is now the case in the first months of 2019, with virtually all asset classes staging a positive performance since the beginning of the year. The good performance of equity markets in particular highlights the extent to which the price losses in 2018 were overstated. In fact the growth expectations have actually deteriorated over the course of 2019 so far, and the political risks have not improved much either. On the other hand, uplift has come once again from the central banks: the US Federal Reserve ended its cycle of interest rate hikes, and the ECB dashed any expectations of interest rates rising in the near future. It…

US labour market: weather conditions put a temporary freeze only on jobs growth; wages continues to rise slightly

As we can see from the official labour market report, US labour market statistics can expect a meagre figure of only 20,000 new jobs added in February. The number of new jobs created by service providers rose by just over 60,000, the weakest development since September 2017. Employment in the industrial sector even fell by 32,000 jobs. This is the first decline since President Trump took office. Nonetheless, we view the fear that employment growth will come to an abrupt end as exaggerated for a variety of reasons. On the one hand, the latest employment figures for the previous two months were revised upwards, so that more than half a million new jobs were created in total in December and January alone. On the other hand, a weather-related one-off effect and the good economic climate must also be mentioned, as well as the ongoing fall in unemployment. Even so, this…

US: what is going to happen with the state government debt?

It is this time again – the US Secretary of the Treasury is working with “extraordinary measures” in order to meet his obligations. At the same time, he is hopeful that Congress will raise the debt ceiling as soon as possible or continue to suspend it. Can we therefore anticipate a political tug-of-war on the “debt ceiling” issue for several months to come? According to estimates, creative budget management can only guarantee the solvency of the world’s largest economy up to the end of the fiscal year at most; in other words, for a period of six months only. Another lasting dispute could be on the cards due to the entrenched domestic political fronts. Only at the start of this year, several federal authorities were forced to shut down for several weeks when no agreement could be reached on the budget for the current year. Furthermore, President Trump recently escalated…

China lowers its growth target – no big deal

China’s government has lowered its growth target for this year. That is not necessarily bad news, and the step likewise did not come as a complete surprise. In recent weeks, countless provinces had already reeled their targets back in. The economic indicators since the beginning of the year have predominantly been weak. It is no secret that the prospects for China’s economy are at present anything but rosy. The trade dispute with the United States is leaving an ever more obvious dent in China’s economic cycle, and not just the US customs tariffs imposed on Chinese goods delivered, but also the counter-tariffs Beijing has imposed on imports from the USA. It was only logical that in his opening speech at the National People’s Congress that has just begun, Premier Li Keqiang cited the trans-Pacific trade conflict as the reason why the targets were being lowered. However, the step taken is…

China, the USA and the “Potemkin Villages” of FX stability

The USA and China are on the verge of making a breakthrough to a new trade treaty. The subject of “foreign exchange” is said to play a key role and there are apparently “exactly defined structural agreements” in place – we wait with bated breath to see what they look like. The speculation to date is that China has promised to take the lid off its interventions in the foreign exchange market. Meaning the emphasis is not on forgoing interventions and also not on ex-ante information or even US permission, but simply on making the interventions more transparent after the event. That said, we should not forget that China has long since ceased to keep the Yuan on the desired track only by resorting to the entrance-level model of forex-policy, namely simply cash market interventions. The structure today is far more complex and includes a mixture of outright, forward and…

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