#Weekly #Review - Financial Markets & Economics: Commentaries by Fabian Wintersberger

After yields have traded within a range for a couple of weeks now, one could observe a rise in demand for government bonds (US & Europe) this week and, vice versa, a fall in yields. German 10y Bund yields are back below -.30 % at April levels. Within the current week, 10y Bund yields have fallen more than 10 bps. Bund yields follow the move of US rates, where US 10y Treasury yields are down nearly 20 bps since July 1st. A possible potential bull flag has dissolved on the downside. Instead of a further rise in yields, as some may have expected in face of currently high inflation numbers, yields fall on the mid and the long end of the curve. In the stock market, the fall in yields has led to a rotation back into growth stocks, away from value stocks. Especially tech companies benefited from a fall in yields on the long end of the curve. If one looks at the Nasdaq-100 ( 100 biggest companies on the Nasdaq ) and the Dow Jones Industrial Average, one sees that growth stocks have been un...

No matter where one is standing in the ongoing inflation vs. deflation debate, one should always listen to the other side’s arguments. That is why this week’s topic will be deflation.   Before I want to discuss today’s arguments for a continuation of the current deflationary economic environment, let us look at the theory at first.   Nowadays the term ‘deflation’ is used synonymously for price deflation, a general decrease of prices.   Basically, falling prices can have two possible causes: either the fall in prices is caused by a falling supply of money in a currency area or by an increase in productivity, which is a rise in the quantity of goods produced. In the second case, price deflation is expressing a rise in the standard of living of the population and therefore something positive.   However, if the gold standard would still be in play, a current account deficit would lead to an outflow of gold to a country with a current account surplus. While the money supp...