Our compact monthly update on developments in the real economy and on financial markets.

5-Year Projection: Negative Auspices (2019/7/31)

Ongoing economic weakness makes it difficult for central banks to reverse the interest rate cuts which are under way. Hence, returns on safe assets will remain negative for a long time in Europe.

© Quelle: Refinitiv, BayernLB Research

  • Synchronous global slowdown will only end in 2020, followed by a moderate recovery.
  • Rate cuts should stave off a recession but are unlikely to initiate a boom.
  • Low inflation will make it harder for central banks to resume the path to normalisation.
  • In Europe, returns on safe assets will remain negative for a long time.
  • Higher-risk assets will benefit but be susceptible to the downside risks predominating.

More: 5-Year Projection: Negative Auspices

Hounded yield hunters (2019/7/25)

Central banks will cut rates soon. This will intensify the pressure on investors to hunt for yield, initially pushing up the prices of higher-risk assets in spite of the persistent economic lull.

Clear & concise

  • Little evidence of an economic recovery in 2020; downside risks predominate.
  • Central banks are reacting by implementing rate cuts.
  • We expect four (25 bp) cuts from the Fed, and see the ECB deposit rate at -0.75%.
  • The interest-rate environment will significantly weaken the dollar vis-à-vis the euro.
  • Higher-risk assets will profit at first from the lack of other assets with positive yields.
  • But risky assets will be hurt in the medium term when the recovery fails to appear.

Read more Perspectives August 2019