William De Vijlder

Group Chief Economist BNP Paribas


at low tide

Metaphoric market musings

Two friends sit on a beach somewhere on the French Atlantic coast… With this fictitious story the reader is invited to spot the metaphors often used in economic and market comments.

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What explains the negative correlation between equity markets and the euro?

The strong decline of equity markets in China has caused a decline of the Euro Stoxx index but also a strengthening of the euro against the US dollar. Whereas the long term relationship between European equities and the euro is positive, this year the correlation has turned negative. This can be explained by the use of the euro as a funding currency for carry trades. If risk rises as witnessed by a decline of equity markets, risk appetite goes down and speculative currency positions are scaled back. This causes the euro to rise.

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Does the euro influence export expectations?

The recently released IFO survey of German export expectations has shown a continuing downward trend which started in the spring of this year. Since mid-March, the euro has strengthened against the US dollar, admittedly with a great deal of volatility. Based on economic theory, it is tempting to see a causal relationship between the two developments: a stronger (weaker) currency would weigh on (boost) exports, something which would be reflected in the assessment by companies of their export opportunities.

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Market volatility made in China: uncertainty dominates the direct economic impact

The bursting of the Chinese equity bubble and the surprise devaluation of the yuan have shaken investor confidence across the globe. More than the direct economic impact, it is the jump in uncertainty which is reflected in the decline of global equity markets. On the back of interest rate cuts and a lowering of the reserve requirements of banks, more policy measures are to be expected in China although some additional weakening of the currency cannot be excluded.

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Increasing divergences: causes and consequences ?

The economic environment is characterised by divergences. The divergence in terms of expectations for monetary policy (Fed vs ECB) has a big impact on bond yields and the EUR/USD exchange rate. The Eurozone also sees divergences, between countries but also between sentiment and activity indicators.

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How best to address the quandary faced by investors?

Text published in Le Jeudi (Luxembourg) on 1 July 2014. In developed economies, the investor has to contend with a triangle that is difficult to manage. At the base of this triangle are interest rates, which are set to remain particularly low for quite some time, and risk indicators which have turned green. Indeed the […]

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Should Fed communication become more ambiguous?

Article published on LinkedIn on 20 June 2014 I’m touring in Asia for ten days meeting clients in Singapore, Jakarta, Hong Kong and Shanghai. Amongst the frequently asked questions, two dominate: how concerned should we be about the slowdown in China (a question very much related to the property market) and what can we expect […]

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Finance and investing : A peaceful uneasy feeling

Article published on LinkedIn on 16 June 2014 Comforting economic news and low levels of the ‘fear gauges’ in markets reflect a peaceful environment, yet investors feel unease. This is healthy and should prolong the bull market. Peaceful The cyclical environment looks peaceful. The US should continue to grow at a satisfactory pace, European business […]

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The awakening of emerging markets

Article published in Les Echos  (France) on 7 April 2014 The solid recent performance of the emerging equity index is due to factors that are inherent to each country and not to a common factor. India is seeing growing interest from foreign investors, thanks to a credible monetary policy, a reduction in its external deficit, […]

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The Fed makes waves on emerging markets

This is an updated version of the article published in Le Jeudi (Luxembourg) on 6 February 2014 and in Beleggers Belangen (Netherlands) on 11 February 2014.  A sturdy ship is needed when sailing in choppy waters. This is the conclusion we can draw from the turmoil that hit several emerging markets earlier this year. There […]

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Four ways to manage uncertainty

Article published in Le Jeudi (Luxembourg) on 6 March 2014 Ninety years ago, an US economist, Frank Knight, first drew the distinction between risk and uncertainty. Risk is a statistical concept. It can be calculated on the basis of historical performances. Uncertainty is another matter entirely. Uncertainty is our awareness that things can happen, combined […]

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Disinflation creates more losers than winners

Article published in Les Echos l’Avis (France) on 25 February 2014 The main news on the financial markets is that inflation is trending downward in the euro zone. This is regarded as a major challenge for the European Central Bank, which, if mismanaged, could plunge our countries into Japanese-style deflation. Mario Draghi and his colleagues […]

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