Latest news with #FinancialStabilityReview
Yahoo
22-05-2025
- Business
- Yahoo
In Full: ECB's Guindos on Inflation, Financial Stability
European Central Bank Vice President Luis de Guindos discusses the ECB's Financial Stability Review, in which it warned that heightened investor concern over the riskiness of US assets could further jolt the world's financial system. Talking with Bloomberg's Alexander Weber on May 22 in Frankfurt, Guindos also comments on the outlook for inflation, monetary policy and the euro-zone economy. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
21-05-2025
- Business
- CNBC
A ‘fundamental regime shift' could be underway as investors rethink U.S. assets, ECB says
The European Central Bank on Wednesday said a "fundamental regime change" could be underway in financial markets as investors appear to be reassessing how risky U.S. assets really are in the wake of trade tariffs. In its latest Financial Stability Review, the central bank discussed the recent spike in market volatility off the back of global trade tensions driven by U.S. tariff policy. Markets have been reacting sensitively to the frequent updates around trade and levies from the U.S. and its trading partners. Stocks first tumbled when U.S. President Donald Trump announced sweeping tariffs, before rebounding when he declared a temporary 90-day pause on duties. "During the turmoil, market functioning – which can be thought of as the ability to trade financial assets quickly without moving prices inordinately – in euro area financial markets held up well," the ECB noted. "This was despite some atypical shifts away from some traditional safe havens like US Treasuries and the US dollar." While this could have been linked to technical factors, the ECB said, it might have also had broader triggers. "These moves might also have reflected perceptions of a more fundamental regime change, with investors seeming to reassess the riskiness of US assets, possibly leading to broader shifts in global capital flows," the ECB noted. "This would have potentially far-reaching consequences for the global financial system." ECB Vice President Luis de Guindos on Wednesday suggested to CNBC that there was a risk of a market correction down the line. Two key things to currently consider are elevated valuations and strong uncertainty, he told CNBC's Annette Weisbach. "Markets are very benign with respect to this scenario. They believe that, you know, growth is going to be low, but we are not going to enter into a recession, inflation is going to decline, and monetary policy will follow suit," de Guindos explained. Risks could still emerge, and various issues such as what could happen regarding trade and fiscal policies and regulation from the U.S. government are unclear, he said. "And these elements give rise to volatility. I think that volatility is, perhaps, you know, the consequence of these two elements ..., valuations and uncertainty." In its report, the central bank pointed out that it had previously warned about "vulnerabilities posed by high valuations that are not backed by fundamentals," saying that "this source of risk has now partly materialised." Trump's reciprocal tariff announcement was the trigger for this, the ECB said. Taking a broader view, de Guindos said uncertainty linked to U.S. trade, fiscal and regulatory policy was now the "name of the game" throughout financial markets and the global economy. The question was now what this uncertainty and any eventual policy moves meant for Europe and financial stability in the euro area, he suggested. Looking at inflation and economic growth, de Guindos reiterated that tariffs would be "detrimental" to growth, while the impact on prices was less clear. In the short term, tariffs would raise the prices of imported goods, while at the same time depressing demand, which could offset the higher costs, he said. Long-term implications could look very different. "[In the] long term, if tariffs and trade distortions give rise to fragmentation that will be detrimental to the supply chain, and that could increase the cost of the corporates. And that could be inflationary," de Guindos said. Earlier this week, the European Union put out its latest economic projections, cutting its 2025 gross domestic product forecast for both the EU and euro area to 1.1% and 0.9% respectively. This compares to a previous estimate of 1.5% growth for the EU and a 1.3% expansion for the euro area. Headline inflation is meanwhile expected to slow, falling below the ECB's 2% target in 2026.
Yahoo
21-05-2025
- Business
- Yahoo
ECB has no doubt Fed will continue to supply dollars abroad
FRANKFURT (Reuters) -European Central Bank supervisors are analysing the dollar exposure of euro zone banks but there is no doubt the U.S. Federal Reserve will continue to supply liquidity at times of stress, ECB vice president Luis de Guindos said on Wednesday. U.S. President Donald Trump's recent attacks on the Fed have raised question about the U.S. central bank's independence and its long-standing commitment to ensuring that foreign banks don't run out of dollars when funding markets dry up. De Guindos said the ECB's supervisory arm was looking into this risk but he was confident that so-called swap lines between the Fed and major central banks, including the ECB, had been beneficial for both sides and would continue. "The agreement that we have with the Federal Reserve, I do not have any doubts that will continue being an important pillar for financial stability globally," de Guindos told a press conference as he presented the ECB's Financial Stability Review(FSR) "These agreements, these swap lines, have been very positive for financial stability on both sides of the Atlantic." Reuters exclusively reported last week that ECB supervisors had asked some banks to assess their need for U.S. dollars in times of stress and particularly if the Fed withdrew the swap lines. So far, however, banks' funding markets such as repurchase agreements (repo) and foreign exchange (fx) swaps had remained calm despite trade-related turmoil in other asset classes. "Market functioning has been orderly," the ECB said in its FSR. "Neither have there been any signs of impaired access to foreign currency funding via repo and FX swap markets, despite the volatility seen in other market segments." Sign in to access your portfolio
Business Recorder
21-05-2025
- Business
- Business Recorder
ECB warns buoyant markets ‘out of sync' with uncertain world
FRANKFURT: Buoyant credit and stock markets appear 'out of sync' with a world gripped by geopolitical and trade uncertainty, the European Central Bank said on Wednesday. The warning came as part of the ECB's twice-yearly Financial Stability Review, a litany of old and new risks ranging from funds depleting their cash buffers to overvalued property markets and high government debt. In the latest edition, the ECB said investors might be underestimating the risk that the economy performs worse than expected, trade tensions escalate or an expected easing of monetary policy fails to materialise. 'Despite the drawdowns, equity valuations remain high while credit spreads still appear out of sync with underlying credit risk,' ECB vice-president Luis de Guindos said in his foreword. The ECB described tariffs as 'major downside risk', estimating that an increase of one standard deviation in an index measuring trade policy uncertainty lowered the median growth forecast by 0.15 percentage points after four quarters. ECB to stand by past stimulus policies in strategy review Such a surge in uncertainty also pushed down banks' share prices by 10.4% after six months and increased their cost of borrowing on the bond market by 7 basis points, the ECB said. Among other risks, the ECB listed cyber attacks, concentrated investments in private markets and growing - if still tenuous - linkages between cryptocurrencies and traditional finance.
Irish Examiner
20-05-2025
- Business
- Irish Examiner
Escalating trade tensions 'significant concern' for financial stability, warns ECB
Escalating global trade tensions have emerged as a "significant concern" for global growth and financial stability, the European Central Bank has warned. In a special feature published by the bank on Tuesday, it said trade openness has largely stagnated in recent years as a result of heightened scepticism towards globalisation. "The recent escalation of trade frictions between major economies – especially between the United States and its trading partners – has fuelled trade policy uncertainty and emerged as a critical concern for businesses and policymakers alike," six staff economists wrote. "This increased uncertainty has the potential to redirect trade flows, reconfigure value chains, deter investment and dampen economic growth." US President Donald Trump's trade war has unnerved global markets, with many multinationals and export-heavy businesses already feeling the sting of the President's punitive levies. Ongoing trade tensions have also had a downward impact on the US dollar, which has fallen against almost every other major currency. "In addition to trade policy uncertainty, the implementation of trade restrictions tends to reduce external demand, increase prices and raise production costs," the note said. "Trade restrictions hinder technological advancement, stifling innovation, productivity and economic growth." It also warned that adverse geopolitical developments unrelated to trade policy itself may also aggravate trade-related tensions, altering the volume of global trade as well as the relative shares of imports and exports between trading partners. The ECB recommended that 'financial institutions should also take a number of proactive steps to cope with risks stemming from trade tensions.' The report, which was prepared by economists Pauline Avril, Paul Bochmann, Stephan Fahr, Aoife Horan, Cosimo Pancaro and Riccardo Pizzeghello, echoes comments from ECB Vice President Luis de Guindos, who last week cautioned that the recent turmoil on tariffs could upend the region's financial system. "The risks to growth resulting from trade tensions, combined with higher defence spending, may limit the fiscal space available to shield the economy from adverse shocks, address structural challenges associated with climate change, digitalisation and low productivity," Mr de Guindos said in a speech. The European Central Bank will publish its biannual Financial Stability Review, on Wednesday May 21.
