Posts tagged central banks
Fiscal dominance is here, or is it?

One of the more useful AI tools that I have set up recently is a bi-weekly macro and demographics theme scout, which collects material on a given topic and runs through a number of recent and older sources, and synthesises this material into a brief essay, as well as a text to speech (TTS) document so that I listen back with the ElevenLabs text-to-speech app.

I thought it might be useful to recycle some of this material on the blog. One of the topics my AI scout landed on earlier this year was fiscal dominance, and whether developed markets are now slipping into this regime after a long period in which monetary dominance—activist monetary and passive fiscal policy—was the norm. I would frame the question like this. Has fiscal largesse during Covid, the subsequent fiscal support to protect against sequential global supply shocks in energy, and more generally deglobalisation and a focus the government balance sheet as a strategic lever for economic security pushed monetary policy into a Sargent and Wallace world of "unpleasant arithmetic”?

Here is the essay with some additions by me and more recent contributions.

Read More
Economic Theory and Acadmics, Economics, Business, and Finance , Fiscal Policy, Monetary Policyclaus vistesenfiscal stimulus, monetary policy, central banks
A look at the bright side

I detect a lot of worry about the global economic outlook. This is understandable. Equities are close to, or at, record highs with extended valuations. Growth fears have crept higher on investors’ list of concerns, most notably with signs of softness in the US labour market as well as persistently weak domestic demand in Europe. Add a still-fragile Chinese economy to the mix, despite hopes of stimulus, and the prospect of a leap in economic uncertainty after next month’s US presidential elections, it is no wonder investors are on edge. But what if I told you that global leading indicators are strong and healthy and that combined with falling inflation and falling interest rates, this is one of the best macro-setups for risk assets. I suspect many would reply that such tailwinds already are comfortably priced-in to equity and credit markets. I am sympathetic to that point, but hear me out.

Read More
Markets and Trading, Economics, Business, and Finance claus vistesenbonds, inflation, business cycle, leading indicators, growth, global economy, yield curve, yields, bond yields, monetary policy, central banks, US, UK, Eurozone
Has Inflation (Fear) Peaked?

I don’t have a definitive answer to the question posed above, but I think it is fair to say that markets traded last week as if the answer is: ‘yes’. In Europe, bund yields plunged below 1.5%, after touching almost 2% earlier in the month, and Dec-22 euribor futures are now pricing-in 50bp less tightening than immediately after the June ECB meeting. The catalyst: a below-consensus PMI report and news that Russia is slowly, but surely turning off gas supply to Europe. In the UK, bond yields have fallen too, in response to a below-consensus core CPI print. And finally, in the US, Jerome Powell’s comment, in a testimony to Congress, that a recession is ‘a possibility’ as the Fed embarks on a series of rate hikes, and QT, similarly drove down bond yields across the curve.

Read More
Global Economy, International Trade and Economics , Monetary Policy, Markets and Tradingclaus vistesenInflation, CPI, prices, inflation pressures, central banks, monetary policy, OECD, interest rates, bond yields
Vol selling is back

First things first, the bull market and, predominantly retail driven, frenzy in cryptocurrencies, SPACs, NFTs, and BANG stocks—BlackBerry, AMC, Nokia, and GameStop—are to me all derivatives of the fact that the policy mandarins of the world are showering the real economy and financial markets with unprecedented levels of liquidity. To be clear, I do not mean to disparage traders who are able to extract value from these markets; all power to them. What I am saying is that if global monetary policymakers were not doing QE by the trillions, on an annualised basis, the bull market in many of these things would evaporate like mist on a hot summer morning. Meanwhile, in old-school assets—themselves beneficiaries of QE—the overarching theme at the moment seems that the vol-sellers are back in charge. The VIX has hurtled lower, to just over 15, and at this rate it will soon be in the low teens. The same is the case for the MOVE index for fixed income volatility, which is also now clearly driving lower, hitting a 13-month low of 53.4 in May.

Read More
claus vistesenUnited Kingdomvolatility, VIX, MOVE, Covid-19, S&P 500, equities, central banks, monetary policy