Economics summary

The low inflation problem in the Eurozone is difficult to find the reason for. The economic activity and the employment growth haven’t affected the hourly earnings and inflation rate as much as they used to be. The problem is troublesome for central banks that are using inflation target as their monetary policy, where they are depending on market demands and expectations to achieve the inflation goal. The economic models the ECB are using couldn’t quite explain the recent low inflation growth. Mario Draghi talked last week about how globalization and digitalization could be the reasons. Lower global economic growth due to geopolitical uncertainty, raising protectionism and weakness from the emerging markets could also have led companies to be more careful of rising their sale prices, just so they could keep their market share. Released consumer price index from Germany showed an increase by 0.2% to 1.6% in June, the market expected an unchanged price index. Though, the core i...

The US secretary of the treasury, Steven Mnuchin, said yesterday that a trade deal between the US and China was 90 percent done, and the deal might be finalized this weekend. The statement came after it was announced that the US was willing to postpone the tariff hike on 300 billion dollars’ worth of Chinese goods. President Trump expressed support that a trade deal might be finalized this weekend. He also said that a deal wasn’t a necessity, and that he had a plan B ready. Already in May this year, Mnuchin also said that the trade deal was 90 percent done. President Trump continued his criticism towards the Fed, and insisted that even though he had the right to demote or fire Powell, he wouldn’t be doing that. He went on and said that instead of Powell, the US should have Draghi as the Fed’s Chair. The South China Morning Post wrote of a tentative truce between the US and China to hold off the tariff hike. This led to an increase in the Asian stock markets this morning. ...

Yesterday’s speech from Fed’s Chair, Jerome Powell, didn’t reveal many surprises. He indirectly addressed president Trump’ statements about the Fed’s monetary policy. Powell said that the Fed is insulated from short term political pressures. He explained further that the US Congress chose to insulate the Fed because it had seen the damage that often rose when policy bend to short term political interests. This shows that president Trump’s wishes won’t affect the Fed’s decisions and, thus gives an important signal to the financial markets. Jerome Powell talked about the conference at the Federal Reserve Bank of Chicago, which included union workers from low- and moderate-income communities, small businesses and people struggling to find work. Powell said he had been told that the tight labor market had benefited these communities in a way that hadn’t been felt for many years. This might be interpreted that the interest rate could be risen. Though Powell didn’t mention if the hourl...

Prior to the last G20 summit in Buenos Aries in December 2018, the uncertainty in the financial markets was high. The trade conflict had escalated with both the US and China’s tariffs. There had been a truce in the conflict with months of negotiations. But at the start of May 2019, the US announced further tariffs. The tariffs had since then been risen to 25 percent on some of the imports from China, and the trade conflict isn’t about tariffs anymore, proven by the US’s ban on Huawei. The tension on Friday’s G20 summit in Osaka is thus high. All this while there is a high tension between the US and Iran. The downing of the US surveillance drone has increased the uncertainty in the financial markets and fear of escalation in the region. Oil price has risen over 65 dollars a barrel, not because the oil production in Iran is considered high, but the production in Saudi Arabia, The United Arab Emirates, Iraq and Kuwait might be affected if the tension increases even further. Euro...