Inflation

The increase in inflation has been considered as one reason for the correction. Accelerating inflation is related to the tightening of central banks’ monetary policy and the rise in the interest rate level, which may be a burden on economies and equity markets.

Here we go again. As we saw post the UK’s EU Referendum result, financial markets sold off following Trump’s election win, with risk assets being the main casualty; however, by the end of Wednesday US equities were back in the black and investors took solace in Trump’s statesmanlike acceptance speech.

Inflation in developed economies is on the rise. Central banks and markets are currently relaxed about the upswing but this will change if economic growth revives from its recent mediocre pace.

According to René Defossez, Strategist at Natixis, it seems reasonable to assume that, to begin with, the European Central Bank will endeavour to keep the 10-year nominal swap as low as possible, which means that the breakeven swap will remain deep in negative territory. However, it is also likely that the breakeven swap will remain very volatile, maybe more so, given the change in the global environment...

According to Azad Zangana, Economist at Schroders, for the European Central Bank (ECB), the faster than expected rise in inflation is unlikely to change its outlook or path of monetary stimulus. The ECB always had a more optimistic forecast than the consensus, and so will not be overly surprised that growth and inflation are improving...