Central banks in a dilemma, market commentary by Kai Johannsen
Frankfurt (ots) – A turbulent week lies behind the actors at the
financial markets. Due to the increasingly gloomy economic
Prospects in many European, but also non-European countries went
Shares on their knees, as can be seen, for example, on the Dax, which falls below the 12,000 mark
counters smeared. Yields on UK government bonds (gilts) fell
through the roof: For example, the rate of 30-year gilts rose for the first time since
the year 2002 to over 5%. The trend also pointed in other maturities
clearly upwards. Starting from the British government bond market, the
yields on Bunds. Well over 2% established the
ten-year Bund yield.
The turbulence in British assets was triggered by the plans of the new
UK government for tax cuts and relief for consumers and
billion dollar companies. This aroused serious concerns among investors
Doubts about the financing of the projects and also caused problems on the foreign exchange market
considerable uncertainty. Britain’s currency fell to an all-time low
from $1.0327. This brought sterling parity into sight. and
an end to the considerable nervousness on the markets is not to be expected,
but rather that the situation could possibly get worse, especially
from the perspective of the bond market.
The big central banks – and not only them – are in the fight against the
Inflation. That means significant interest rate hikes. On the one hand, they will
Key interest rates raised in many currency areas. So also in Great Britain. That
also leads to upward yield adjustments on the government bond market. And exactly that
drives at least times the worry lines on the British currency watchdogs
Forehead. In addition to QT (Quantitative Tightening) comes QE again. Since just
Last week, the Bank of England (BoE) bought long-term government bonds
Duration. The purpose of these purchases is to re-order
To create market conditions, so the reasoning. The BoE wants to
Buy as many bonds as you need to in October to boost the financial market
stabilize. However, should the market dysfunction continue
or even worsen, would pose a significant risk to the
British financial stability exist. Financing conditions would
deteriorate, lending would decline.
Policy rates up to tame inflation, market rates in shape
risk-free bond yields in turn push the economy down
not to stall. With all due respect: One shouldn’t be angry when some people
Market players with this approach use terms such as headless or desperate
come to mind. But it also shows that there is no panacea in this
situation, and it also demonstrates the whole dilemma in which the
Central bankers are currently with everyone after extensively fighting the pandemic
economic impact, Ukraine war, associated energy crisis
and the increasingly gloomy economic prospects.
Certainly not an easy situation.
But the first notes are also being heard in the ranks of the ECB, those in the previous
concert doesn’t really fit in. The ECB should from Portugal’s perspective
Central bank chief Mario Centeno should not raise key interest rates too quickly, otherwise
the economy is overburdened. “That could invest in a
Dampening a time when we desperately need this,” he said at a conference
in the Lithuanian capital Vilnius. Raising interest rates too quickly could
also mean that the central bank may later lower interest rates
have to steer back. Hear hear!
And indeed, higher risk-free interest rates could become a liability.
And there are two camps to consider. Especially the countries on the periphery of the eurozone
could feel the high interest burden on their debt quite severely
and sing the dirge. The sovereign debt crisis euro zone is safe
so many still remember. And if companies due to the looming
Recession which will collapse earnings and profits, they are certainly not over
higher refinancing costs on the bond markets. That complicates the situation
for many additionally via the funding page. Who knows, maybe he is
current push by the BoE is also an example of what the actors in the euro zone
expected. The bond purchases could also be much more extensive again
become when the situation gets out of hand. Soothing is somehow different.
(Börsen-Zeitung, October 1, 2022)
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