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Wed 14 Nov 2018 / Africa

Zambia's infrastructure habit

Infrastructure development in Zambia is a powerful tool for swaying public opinion. However, despite its importance to economic growth, it is contentious. Past projects are associated with high costs, opaque tender processes and rising public debt. The tension between development and debt dominates, and the two issues often lead back to China and its funding of Zambian infrastructure projects. In a nation that emerged out of colonialism, fears of its reoccurrence in a different form are well founded.

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Tue 13 Nov 2018 / North America

Doves waiting in Fed wings

The rotation of voting members of the Federal Open Market Committee after its December meeting will bring to the fore outspoken doves, James Bullard of the St. Louis Fed and Charles Evans of the Chicago Fed, to balance out incoming hawks. Bullard made headlines in mid-October by calling for the Fed to stop raising rates and has proposed changed in how the Fed views the sustainability of current low unemployment and its effect on inflation. So far, the Fed has been able to raise rates because the economy has outperformed.

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Mon 12 Nov 2018 / North America

Rising external deficit 'made in USA'

As US external deficits widen in response to relatively strong US economic performance and imbalanced macroeconomic policies, there is a considerable risk the Trump administration could amplify its protectionist rhetoric and actions. Yet rising US trade and current account deficits are largely 'made in America'. The increasing divergence between the US and other major global economies, aggravated by the imbalanced US macroeconomic policy mix, remains the most striking aspect of the worsening currency confusion.

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Fri 9 Nov 2018 / North America

US midterms fulfil market expectations

The results of the 6 November US midterm elections illustrate how President Donald Trump remains bound to historical norms around US voter preferences for shared power. That is the central insight from this result: the loss of total Republican control of Congress should somewhat constrain Trump's potential for erratic behaviour. The initial market reaction has been positive, as the outcome fulfilled expectations. While the chance of gridlock in Congress is higher, the result also reduces the probability of negative policy surprises.

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Thu 8 Nov 2018 / Europe

Merkel can help Christian Democrats

German Chancellor Angela Merkel bequeaths a political legacy that leaves leadership of Europe's most powerful economy in less than wholly secure hands. The result of her manoeuvring is a country with seven major political parties competing in parliament. Those bidding for Merkel's job will need to keep an eye on a possible revival of the earlier-considered four-party coalition. If the Social Democrats leave (or are pushed out of) the 'grand coalition' next year, Merkel's successor will have another chance of forging a new constellation.

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Wed 7 Nov 2018 / Asia Pacific

China cooling spreads beyond borders

The Shanghai Composite Index tumbled by more than 9% in October, and has shed 25% for the year. To determine the probability of a cool down, one must look at the money supply, broadly measured. The relationship between the growth rate of the money supply and nominal GDP is unambiguous and overwhelming. It is unsurprising that Chinese stock markets have been rattled. Moreover, as China has for some time been the biggest contributor to world growth, the cooling spreads beyond the country's borders.

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Tue 6 Nov 2018 / Europe

Country risk from credit derivatives

Countries swapping their foreign currency debt back into their own currency or their domestic debt are as much at risk from credit derivatives as investment banks were 10 years ago. If one counterparty defaults, this could be a huge cost to the other. Most market participants agree to pay some form of collateral when the value of the swap moves one way or another. However, most countries cannot post collateral.

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Mon 5 Nov 2018 / North America

US faces twin deficit crisis

The US trade deficit has widened steadily over the past two years, reaching a record high of almost $1tn annually. As a result of Washington's expansive budget policy at this late stage in the economic cycle, analysts expect that over the next two years the US budget deficit will rise to a peace-time high of more than $1tn. This makes it probable that the US will face a twin deficit problem – an outsized budget deficit and an outsized trade deficit – last seen in the 1980s during Ronald Reagan's presidency.

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Fri 2 Nov 2018 / Global

Incorporating climate risk in QE

Ensuring climate-related risk does not translate to financial instability is a key concern for central banks, but not an exclusive one. Central banks are tasked with safeguarding prosperity, which in turn requires that prosperity be generated sustainably. Monetary authorities should lead by example by supporting the transition to lower-carbon economies in their roles as investors. One controversial approach would be for central banks to take climate risks into account in the purchases that form part of their QE programmes.

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Thu 1 Nov 2018 / Europe

'Incertitudes allemandes' back again

German instability is back again. Angela Merkel, presiding over the ruling Christian Democratic Union as chairman since 2000 and as chancellor since 2005, will step down from the party leadership in December. She protests that she will stay the course. A fight is brewing among the (at least) four disparate candidates for the party chair. The odds are shortening on her departing from the chancellorship well before general elections scheduled for 2021. The next poll could indeed come a lot sooner.

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