The Day at a Glance | Jun 28 2022

The Top

*The ECB announced it will reinvest maturing bonds flexibly in order to maintain stability in sovereign debt markets.

*Carmen Reinhard, World Bank Chief Economist, once again warned about the risks of a debt crisis in emerging and undeveloped economies.

*We will expand credit and not decrease the interest rate to stimulate the economy: Yi Gang, Governor of the People`s Bank of China.

*The rate of unemployment in Mexico increased to 3.4% during May (3.1% prev.).

*China reduced days of quarantine to half (7 days), a sign that they are easing their policy to contain COVID-19.

*18 people died in a bombarded shopping mall in Ukraine; G-7 called this a war crime and continues to assess new sanctions on Russia.

Economic environment

The ECB will start carrying out actions to ease volatility in the bonds market. In a speech made in Sintra, Portugal, where members of the European Central Bank have come together (in an event known as the “ECB`s Jackson Hole”), President Christine Lagarde confirmed that the first actions will be carried out in order to avoid volatility in the region`s sovereign debt markets. Asset purchasing programs will end on July 1st, and a “flexibility” program in the reinvestment of purchased assets will start; which will allow the ECB to reinvest maturing bonds in countries like Italy, Spain or Greece, with the intention of decreasing volatility in these markets and avoid a sovereign debt crisis. Ultimately, they seek to protect the block`s most indebted countries in order to avoid speculators aggressively restricting these countries` funding capacity, and for the ECB`s monetary policy to spread effectively as a gradual increase in interest rates occurs in the region. It`s believed that the ECB is also assessing the implementation of a new asset purchasing program for countries in Europe`s periphery – something that could be announced next week. In an environment of increasing rates, less affluence conditions will put pressure on over-indebted countries, or ones with vulnerable fiscal and financial positions; not only in Europe, but also among emerging and underdeveloped countries. For Carmen Reinhart, Chief Economist at the World Bank, the amount of countries that are at risk of suffering a crisis due to an excessive amount of debt is increasing. Reinhart assured that Sri Lanka`s case is a sign that a debt crisis is already starting to occur in low income countries. The risk of this entails that this could reach emerging economies as interest rates increase in advanced economies.

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