One of the main differences between free market and communist economies is the role of prices.
As generally expected, last week’s European Central Bank (ECB) meeting unfolded without any surprises; nothing new under the sun, so let’s enjoy it while the summer is here and continue to consider Euro corporate bonds. Such a cool, calm attitude suits the need to analyse the consequences of Brexit on the Eurozone. Mario Draghi also had a message that the Central Bank’s actions are but one tool in a whole kit of tools available to support growth and employment; other policy areas need to act swiftly, too.
Brexit introduces fresh headwinds to growth – headwinds that are reinforced by rising political risks in key EU countries. While inflation should start to rise soon, we still expect additional ECB action and see prospects for some fiscal easing.
The UK referendum on European Union membership saw 51.9% of voters favor leave, surprising a market that had become confident of a remain outcome over the last few days. Thus far, financial markets have not shown widespread panic, just weakness and increased volatility.