THE DECOUPLING BETWEEN ASSET PRICES AND THE REAL ECONOMY

Posted 22 July, 2020

In the OECD countries, financial markets will decouple from the real economy, because while the economic recovery is strong in the short term, potential growth will be reduced by a number of mechanisms. If inflation normalizes, central banks will continue to control yield curves, and sustained negative long-term real interest rates will result in a sharp rise in asset prices, according to Natixis analysts.

 

Important quotes


"The economic recovery in the OECD countries is strong in the short term, thanks in particular to an upturn in consumption through public transfer payments and catch-up consumption. However, the potential growth in the wake of the recession due to the loss of productive and human capital is expected to increase high corporate debt and the growing number of zombie companies, which means that post-recession GDP will never return to the level it would have been without the recession. "

"We believe that, given the recovery in demand, rising commodity prices and, more structurally, the aging of the population and the return of regional value chains, inflation in the OECD countries will normalize, given the high cost of production in the OECD countries. We also believe central banks will continue to use yield curve control to ensure government solvency in the face of increasing public debt ratios, and if inflation normalizes and long-term nominal interest rates are controlled, long-term real interest rates in the OECD are expected to remain negative become".

"If real long-term interest rates remain negative, the valuation of long-term assets will increase and investors will switch to risky assets in search of reasonable returns. So you should see a sharp rise in stock valuation and stock market indices, a sharp rise in house prices and expect credit spreads to narrow ".

Previous story

22 July, 2020 13:26

← SOUTH KOREA TO INTRODUCE TAX OF 20% ON INCOME FROM CRYPTOCURRENCIES

Amendments to the legislation will enter into force on October 1 next year.

SOUTH KOREA TO INTRODUCE TAX OF 20% ON INCOME FROM CRYPTOCURRENCIES

Next story

21 July, 2020 10:05

HACKERS STOLE BITCOINS FROM WALLETS USING APPLICATION BUG →

ZenGo experts reported that a BigSpender bug was found in a large number of cryptocurrency wallets. This creates a loophole for cybercriminals to steal cryptocurrency.

HACKERS STOLE BITCOINS FROM WALLETS USING APPLICATION BUG
Write a comment
 
Prove you’re not a bot + 13 = 24