Investors’ underlying fear seems to be that the developed world is slipping into a deflationary spiral;
hence the falls in commodity prices and a sharp drop in expectations of inflation, as measured by the Treasury-bond market.
The recent weakness in the euro and the yen may be a sign that those regions are exporting deflation to the rest of the world, as their exporters cut prices to seize market share.
Deflation can cause severe pain in the corporate sector; a further sign of trouble is that the spread (or excess interest rate) paid by the riskiest bond issuers has widened by one-and-a-half percentage points since June.
This deterioration is seen by Julien Garran, an analyst at UBS, as the “fourth horseman of the apocalypse”, signalling that deflation is on its way. If investors lose faith in the Fed’s ability to rescue them from that fate, the recent market weakness may be only the beginning.
http://www.economist.com/news/finance-and-economics/21625825-fears-deflation-may-lie-behind-recent-weakness-bears-no-picnic
hence the falls in commodity prices and a sharp drop in expectations of inflation, as measured by the Treasury-bond market.
The recent weakness in the euro and the yen may be a sign that those regions are exporting deflation to the rest of the world, as their exporters cut prices to seize market share.
Deflation can cause severe pain in the corporate sector; a further sign of trouble is that the spread (or excess interest rate) paid by the riskiest bond issuers has widened by one-and-a-half percentage points since June.
This deterioration is seen by Julien Garran, an analyst at UBS, as the “fourth horseman of the apocalypse”, signalling that deflation is on its way. If investors lose faith in the Fed’s ability to rescue them from that fate, the recent market weakness may be only the beginning.
http://www.economist.com/news/finance-and-economics/21625825-fears-deflation-may-lie-behind-recent-weakness-bears-no-picnic
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