Based on historical experience, the recent increase in equity volatility may end up weighing on future growth.
How market volatility weighs on growth ?
Published on November 22, 2018 in :
Markets and financial investments
William De Vijlder analyses the relations between the economy and the markets (including bond, equity, commodity, capital and currency markets), investor behaviour, and their appetite for risk taking, in keeping with economic data and the level of uncertainty.
Based on historical experience, the recent increase in equity volatility may end up weighing on future growth.
Published on November 22, 2018 in :
Markets and financial investments
US long-term rates rose sharply in early October, which brings to mind the sudden rise in early February. Upside surprises in terms of wages and inflation triggered February’s upturn, while the catalyst in early October was a strong rise in non-manufacturing ISM, an indicator that is usually not monitored very closely. That this indicator should have such a big impact already shows how nervous the markets are.
Published on November 6, 2018 in :
Markets and financial investments
In Wall Street stock market fell sharply again, pursuing a bearish trend initiated several weeks earlier. For an economic understanding of these trends, it is worth comparing equity market behaviour with that of the other asset classes, an exercise that is all the more difficult given that the correlation between asset classes tends to increase as pressures rise.
Published on November 6, 2018 in :
Markets and financial investments
Equity markets continue to be particularly volatile. Understandably this has weighed on government bond yields. The volatility of high yield bonds remains low however. This could indicate that recent equity market swings are driven by other factors than worries about the outlook for GDP growth or monetary policy.
Published on October 26, 2018 in :
Markets and financial investments
The eruption of US equity market volatility, with global spillover effects, is a delayed reaction to a rather significant increase in bond yields since the second part of August. Market-implied inflation expectations didn’t move that much so the rise in long term rates reflects an increase in real yields which in turn is related to strong growth numbers. Historically the relationship between weekly changes in yields and stock market performance is weak. This implies that one should focus on drivers of investor risk appetite and in particular signs of slower growth.
Published on October 16, 2018 in :
Markets and financial investments
Judging by the recent developments in financial markets, investors feel more upbeat. On the economic front (growth and the outlook for monetary policy) nothing has really changed. The euro has benefitted from the ‘risk-on’ environment despite a widening interest rate differential with the US.
Published on September 24, 2018 in :
Markets and financial investments
In the September 2018 edition of EcoTV week, William de Vijlder and François Doux discuss on the protectionist threat which has been grabbing headlines but hasn’t stopped Wall Street from reaching new highs, supported by growth in earnings and the perception of a dovish Fed.
Published on September 11, 2018 in :
Markets and financial investments
Speculative positioning in VIX futures shows investors expect volatility to remain low, which implies an absence of growth or inflation shocks. The flattening of the US yield curve shows investors expect slower growth. These conflicting views may reflect differences in investment horizon but in the end, only one of the two can get it right, which is a source of concern.
Published on July 16, 2018 in :
Markets and financial investments
Central bank communication has gone through a fundamental transformation in the past three decades.
Published on June 22, 2018 in :
Markets and financial investments
Recent data have brought relief that strong US growth remains intact but eventually this is likely to produce concern about inflation overshooting the Fed’s target.
Published on June 12, 2018 in :
Markets and financial investments
Political uncertainty in Italy has caused market turmoil with significant spillover effects within but also beyond the Eurozone. Contagion within the eurozone was of a different nature than in 2011. With a new government in place, attention will now focus on its economic policy, in particular in terms of public finances.
Published on June 4, 2018 in :
Markets and financial investments
What keeps investment managers awake at night?
Published on May 15, 2018 in :
Markets and financial investments
During the current business cycle, rising bond yields have been accompanied by rising equity prices. From a historical perspective, the rise in equities in recent months has been abnormally strong, probably helped by the prospect of corporate tax cuts. Market developments this week show a high sensitivity to economic surprises which may end up fuelling economic uncertainty.
Published on February 12, 2018 in :
Markets and financial investments
The ECB’s Financial Stability Review expresses concern about increased risk-taking behaviour in financial markets. Such behaviour increases the sensitivity of markets to unexpected developments in the economy. Accommodative monetary policy is a balancing act when growth is robust, inflation low and asset valuations rich.
Published on December 4, 2017 in :
Markets and financial investments
The slope of the US yield curve has flattened significantly this year despite Fed rate hikes. In the past this has often been a harbinger of a major economic downturn. In this cycle the signal coming from the yield curve has probably become less reliable.
Published on November 27, 2017 in :
Markets and financial investments
William de Vijlder discusses European monetary policy and markets on CNBC (October 10th).
Published on November 10, 2017 in :
Markets and financial investments
Economists generally take great interest in the behaviour of financial markets. We are actually in a phase of vigilance. The bull market also raises the question of its sensitivity to any changes.
Published on November 10, 2017 in :
Markets and financial investments
The euro area Economic Sentiment Index is at its highest level since January 2001 and the growth outlook is robust. However, the historical experience of the ESI once the peak had been passed is quite diverse: weaker data not only reflect but also contribute to an increase in uncertainty.
Published on November 8, 2017 in :
Markets and financial investments