I long rates they had accustomed us to an almost boring stability, but in the last month there has been a jerk, with the yields of the T-Bond which have risen above the 1% threshold. For heaven's sake, that sounds like a lot, but it needs to be put into perspective: a year ago they were at 1,9%, and now it's more of a start to normalization, after the drop to the record level of 0,60% in the middle of the year.
There are also savings demand factors, both by the US Treasury, which must finance huge deficit (see the new support measures that have just been approved, plus the famous 2000 dollars each, which the new Senate will give the go-ahead), both on the part of those who issue building loans: the demand for homes is strong, and the builders' confidence indexes are the highest for thirty years.
Passing on the other side of the Atlantic, the delay of the recovery in Europe leaves the yields of Waist where they are (perhaps a little less negative), while the stability of rates on btp causes the spread to drop further, now below 110 basis points. Anyone looking at the anxious maneuvers of the Roman Palace, still on the verge of a crisis, might be surprised by theolympic calm of the markets in keeping the yields of BTPs at levels slightly above half a point, and lo spread permanently below 110.
But the answer is always the same: in the world there is a excess savings, and there are the company's generous bond-buying programs ECB. The financing of public deficits is practically guaranteed. Last January, yields on BTPs were 1,4%, and anyone who had bought them then finds themselves with a satisfactory capital gain.
Of course, there are those who will wonder if these easy gains will continue, or if a rate hikes will lead to losses, in the balance sheets of savers and in those of banks. Of course, in the Chancelleries, in the Ministries of the Economy and in the Central Banks around the world there are many 'hawks' who are not at ease in a world with ever-rising public debts.
But a different approach to economic policy is winding its way through the academy and in the muffled offices of international bodies (all people who are not responsible for financing deficits and therefore have more time to think). THE rates, it is said, they will remain low, the debt is planet, we must not run the risk of returning to austerity (as in 1937 in America, or as in the Eurozone after the Great Recession or as Japan with the ill-timed VAT increases…), and there is nothing wrong with they arrive money from the helicopter, or if, metaphorically speaking, the central banks indulge in what, according to practice and grammar, is the most expansive maneuver imaginable: increased government spending financed by money creation.
For the real rates, these, at the beginning of the year, were positioned, with a rare commonality of intent, around zero, both for the T-Bond, which for i Waist and btp. During 2020 we had repeatedly complained that, with so many 'minus signs' of GDP variations scattered across all cardinal points, real rates should have been much lower than they were. The same reasoning, in this year of grace 2021, leads to approve real rates at zero: given that, barring horrible but unlikely surprises, the dynamics of GDP in the various cardinal points change sign and are well above zero, these low real rates will be recovery comfort.
Especially since another comfort comes from cost of equity capital. The good health of the stock markets lowers this cost and makes the monetary conditions one of the easiest ever.
At this point the objection may be raised: yes, but are stock market prices fragile or solid? Anyone who wanted to bet on the "insane" optimism of those markets over the painful months (they're not over...) of the infections would have lost money. Are the markets irrational? Maybe so, but as Keynes once observed, "Markets can stay irrational longer than you can stay solvent."
And in fact it has a certain effect to see the macabre synchronicity (graph) between the trend of deaths from Covid-19 in the USA and the S&P500 index. But perhaps there is method to this madness. THE profits held and in many cases they have increased, especially in America, where they are impressive support measures have benefited not only the families but also the companies. And the Bags they look at company accounts, not hospitals or cemeteries.
Il dollar sees its attraction as a 'safe haven' undermined both by economic factors (elimination of the long-term real rate differential T-Bond/Bund) and from geo-political factors. The surreal story of American elections, culminating with the incredible and bloody assault on the Capitol (not the Roman one: Raggi is safe and sound!), did a lot to smear the soft power of the United States and, if the currency is the "business card" of a nation, today this note is no longer "without blemish and without fear".
It may be that the dollar, which perhaps has not finished descending, may regain ground during the year, if, as more than likely, the economy in America – between expansionary measures, the new President's 'honeymoon' and progress in vaccination – has a vigorous recovery. Whether this reversal in the greenback's change could hold true for the euro, cannot apply to the chinese coin. This will continue to reflect China's relative strength.
An interesting study by the Peterson Institute for International Economics states that the financial integration between China and the rest of the world (and especially the USA) continues: It is imposed by markets and facilitated by past agreements with America aimed at lubricating both capital inflows and outflows. The pinpricks of the Trump administration (delisted of Chinese companies from Wall Street and assorted sanctions) are largely symbolic and do not change the underlying reality. Since the fact that the demand and supply of currency is determined much more by the also applies to China capital movements rather than from current transactions, the flows to China they will continue to hold the change of the yuan at strong levels.
Especially since the new Chinese economic model (new so to speak, given that it is now five years old) focuses on the development of services and consumption and on new technologies, where price competition counts for little. And it intends to depend less and less on the import of manufactured goods. While a strong exchange rate makes raw materials cheaper, which the Chinese giant will continue to have a growing need for.
