Cyprus bailout to deepen euro crisis?

Depositors no longer save The Cypriot bailout is creating a risky precedent. So far, savers have been spared as the European banks were bailed out. However, savers in Cyprus (as well as other depositors) now stand to lose between 3% and 15% of their money. This raises the question whether deposits at – for example – the Italian and/or Spanish banks are safe. Could the same happen in these...

Europe demands attention from the markets again

Europe has caught the attention of the world again after a couple of months in which the continent didn’t spook the financial markets with ridiculous infighting, jaw dropping  scandals and financial sector mayhem. The markets have made excellent use of the period of respite: stock indices have reached multiyear highs and EUR/USD has climbed to 1.37. But last week political-economic...

Fed loosens policy more aggressively

Yesterday, the Fed has announced several monetary stimulus measures to provide an additional boost to the US economy. Most importantly: The Fed will hold the short-term interest rate exceptionally low, at least until 2016 The Fed will purchase a monthly amount of $40bn in mortgage bonds The Fed will continue  ‘Operation Twist’: buying long-term US government bonds from the banks in return...

Did risk-on rally end with publication of FOMC minutes?

Can risky asset prices (most notably commodity prices and stocks) continue the rally of recent weeks, or are the current drops in those prices the harbinger of further declines to come? A lot of upward pressure on risky asset prices in recent months has come from: the belief that the Fed will shortly open the liquidity taps again (QE III). The prospects of more money-printing has encouraged...

Why more QE to stimulate growth is a bad idea

The dangers and drawbacks of Quantitative Easing Generally, quantitative easing (central banks buying up bonds with money it creates itself) is expected to boost economic growth as it has the following effects: Buying up large quantities of bonds suppresses long-term interest rates. This is extremely important, as long-term interest rates are far more important for economic growth than...

German loss at EU summit must be put into perspective

The decisions taken at the EU summer of last week received a warm welcome on the financial markets. The weak EMU countries face looser conditions for financial assistance from their Eurozone counterparts, reducing the risks of a euro(zone) collapse. Is this enthusiasm justified?   Financial markets have reacted positively to the decisions taken by EU government leaders last week. Has this...