European Central bank warns of sharp correction in the markets – Teletrece

so far, the financial system of the euro area has been "resilient" in front of episodes of political upheaval, registered in the last time, as highlighted by the European Central Bank (ECB) in its latest semi-annual report. But, the organization warned that the element of volatility introduced by the political uncertainty and the changes proposed by Donald Trump, raise the risk to the financial stability of the euro zone before a disorderly unwinding in the price of the assets.

"In general, as the risk premiums on the global level continue to be compressed, it is likely that there is more volatility in the near future and that the potential for a reversal abrupt continue to be significant, in the midst of a higher political uncertainty around the world, and the underlying vulnerabilities of emerging markets," the report states.

The journal The Economist.this is a quotation declarations of the vice-president of the ECB, Vítor Constancio, who noted that "this risk has been present since a long time ago, but has worsened recently, particularly after the elections in the united States," adding that they have seen "bad assignments in the price of assets, with declines in the valuation of the bonds, rising stocks, and a large appreciation of the dollar".

The possible policies implemented by the united States are a constant concern for the euro area, as these could impact the trade and also indirectly by the increase of interest and inflation expectations of the north american giant. Before this, Constancio said they are confident that the effects in the euro area will be "moderated", so that the ECB maintains its baseline scenario of growth and inflation, which points towards the continuation of the economic recovery.

But not only the american stage is concerned to the markets. The political uncertainty generated by the referendum in Italy and the upcoming elections in the Netherlands, France and Germany are also a concern, which translates into "the introduction of some volatility in financial prices," said Constancio. "The ECB needs to be prepared, and what is, if of these possibilities occurs a most dramatic event that causes jolts to which we respond," said the vice president.

The ECB notes four systemic risks to financial stability over the next two years:

1. A correction in the price of the asset by the policy uncertainty in advanced economies.
2. The persistent fragility of the emerging economies.
3. The negative feedback between the weak profitability of banks and a low nominal growth.
4. An amplification of the risk of liquidity and contagion to the whole financial sector by tensions in the sector of investment funds.