More government spending may be needed in Europe to close the growth rate gap with the U.S.
That sharp rate differential reflects the relative prospects of the two economies, with Eurozone growth and other economic measures continuing to fall short of even the relatively pessimistic expectations of the European Central Bank (ECB). In contrast, the U.S. generally has been surprising to the upside since June 2019. That’s very evident in the chart below, which reflects the degree to which the regions fall short or exceed expectations for a range of indicators; positive figures signal overall outperformance, and negative figures signal overall underperformance.
Citi Economic Surprise Indexes: U.S. vs. Eurozone
One source of U.S. resilience could well be the upward march of government spending, a de facto fiscal stimulus not currently being matched in Europe, thanks in part to political complexities, and in part to the fiscal conservatism of key stakeholders, including Germany itself.
On the Rise: Puerto Rico’s Debt Deal
That $35 billion will be replaced by $12 billion worth of bonds payable over the next 30 years; in connection with other deals reached earlier this year, the agreement paves the way for bankruptcy to be lifted later in 2019. The island suspended payments in 2016 pending renegotiation with creditors.
On the Slide: Bank of Japan Asset Purchases
That’s a change that Japan’s financial sector would presumably welcome, given the crushing pressure on lending margins that’s come from the ultra-low rate policy of its central bank. The BoJ had committed to a target yield of 0% for 10-year government bonds, but a general decline in global bond yields helped push market yields down to -0.2%, forcing the Bank’s hand.
1 Source: Bloomberg, September 26, 2019, 3:45 PM ET [Bloomberg function WBX].
The Bank of Japan (BoJ) is the central bank of Japan and is responsible for the yen currency.
A basis point (bps) is one one-hundredth of one percentage point (1/100% or 0.01%).
Bunds refers to bonds issued by Germany's federal government. Bunds are available in 10- and 30-year maturities.
The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected.
The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.
The U.S. Federal Reserve, or “Fed,” is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.
The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.
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