Forward Thinking

Latest news and innovations from Oxford Economics

Looming liquidity drain raises bond market risks

Posted by Oxford Economics on Jun 19, 2018 3:25:57 PM

Markets’ attention in recent weeks and months has been focused intently on central bank policy actions as the US Federal Reserve and European Central Bank have pressed ahead with further moves toward ending the era of historically low interest rates and easy money. Yet beneath the surface of the world economy, potent trends in global liquidity driven by the vast capital flows across fixed income markets have commanded far less scrutiny – despite far-reaching implications.

A large liquidity squeeze looms, with equally large potential consequences. Cross-border bond purchases by fixed income investors could plausibly drop by more than half this year and next, to an average of only $500 billion a year, versus 2017’s tally of $1.2 trillion.

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Topics: Bond market, Fixed income, Capital flows, ECB, Federal Reserve, Quantitative easing, Dollar, Euro, Global liquidity, Global economics, Global economy

Europe may be poised for a golden decade of economic expansion

Posted by Oxford Economics on Nov 20, 2017 12:14:14 PM

Lost amid Europe’s political drama and recurrent euro doomsday scenarios is the fact that the Eurozone economy has a business cycle that is alive and well.

Our analysis suggests there is plenty of room left in the current expansionary cycle, which could see the single currency area enjoy a golden decade of economic growth. 

More than four years into the current upturn, most indicators signal the Eurozone economy is still somewhere around mid-cycle, suggesting that – absent an unexpected shock – we should see several more years of sustained expansion. 

One reason is that the amount of economic slack in the Eurozone countries –  the size of the “output gap” before an economy hits a ‘speed limit’ above which growth comes with inflation – may be larger than commonly accepted. 

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Topics: Europe, ECB, Euroboom, Eurozone, Draghi, Business and economic outlook, Global Economic Model

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