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Economics and equities

| Posted by: Paul Donovan | Tags: Paul Donovan

Equity market moves are creating rather sensational headlines. Economics has no part to play in this, however. Economically, the world is doing fine – on track for trend-like growth. The modest rise in bond yields (in manipulated markets) is not economically significant. Wealth effects from the decline in equities are very limited so far.

Central bank tightening is a little different this cycle. Central banks are not seeking to lower inflation, and therefore are not trying to reduce economic demand or undermine corporate pricing power. This tightening cycle is less hostile to equities, therefore. Some dovishness may be offered by ECB President Draghi today, because it is Draghi.

The most tedious political crisis in the world continues in Germany, where coalition negotiations have been extended. Even when a deal is done the process is not concluded, as the SPD membership have to vote on the outcome. Markets are not interested. No one is interested.

Assorted business sentiment surveys for the service sector are due. There are more interesting things to pay attention to.