The age of stagfusion

TRADERS are now back at their desks, and markets are getting active again, after a somnolent August. Friday saw the first significant sell-off (in both bonds and equities) for a while and the trend continued on Monday morning. German 10-year yields have “soared” to 0.03%.

The proximate cause seems to be central bank action and inaction. The Federal Reserve looks more likely to increase rates this year while the European Central Bank failed to add any stimulus last week. The narrowing trend in the Presidential polls (and the health scare for Hillary Clinton) can be thrown into the mix; there is not the usual investor enthusiasm for the Republicans, given the nature of the nominee.

But the underlying problem needs a new word – stagfusion. Investors have become used to low interest rates and bond yields since central banks started to loosen policy in 2008. They have prospered from it, since asset valuations have risen and corporate profits have held up well, particularly in the US. But they also grumble about it from…Continue reading

This post was originally published in the Economist.

The age of stagfusion

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