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Euro banks' equity valuations - credit still to catch up?

  • Equity valuation of European banks hit its lowest point since 2 August 2012.
  • This drop in valuations reflects what appear to be growing fears around the health of the banking sector in Europe.
  • But while equity valuations have tanked, the move in CDS has been much less pronounced, and is still a far cry from the 280 level hit on 2 August 2012.

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Market-testing the euro area recovery

  • While the euro area economic recovery continues for now, heightened global financial market turmoil risks denting business and consumer confidence and hitting GDP growth.
  • Given the weakened inflation outlook the ECB will ease policy again in March. But whatever is announced seems unlikely to be transformative.

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The BoJ and its (sort of) negative interest rate

  • Kuroda once again pulled a headline-grabbing rabbit out of the hat, with the announcement of a ‘negative’ interest rate on excess reserves.
  • But, as ever with recent BoJ announcements, the devil is in the detail.
  • And today’s announcement could well mark the beginning of the end for a QQE programme that has proved successful in raising underlying inflation.

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Japan: Recovery in recess

  • The BoJ appears overoptimistic about Japan’s economic outlook and we expect the 2% inflation target to remain well out of reach over the coming couple of years. 
  • But the economic recovery is probably just in temporary recess and we do not expect a return to recession. And we think the BoJ will continue to resist the urge to ease policy further.

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Greece's threat of euro exit has cheated it of a recovery

  • As the money runs out in Athens, signs are that the Greek Government is inching towards a last-minute deal.
  • But the damage done to the Greek economy during the negotiations has been immense.

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