This Is What I Have Studied

Why I Do This?

Personally, I have a daily habit of reading financial reports, particularly those on FX and Economics. In the past, whenever I encountered unfamiliar jargon, I relied on educated guesses to continue reading smoothly. However, looking back, I regret not taking the time to check the meanings and learn from them.

Therefore, I believe it’s time for a change. I am committed to continue my daily reading of articles from strategists, but I also strongly feel the need to start actively learning those jargon and expressions. It’s never too late to learn for me as a non-native speaker.

Day 1

What I read today?

• Carnell, Robert, et al. “Key Risks to the Global Outlook.” ING Think, 5 Oct. 2023, https://think.ing.com/articles/monthly-key-risks-to-the-global-outlook-oct-2023/.

Chinese real estate concerns, a ramping up of the ECB's quantitative tightening, and fresh instability in US commercial property and regional banks all pose risks to our current base case.

• Ramp-up: it is a term used in economics and business to describe an increase in a firm's production ahead of anticipated increases in product demand.

A lack of transparency and a convoluted financing system have raised fears that the problems of China’s property development companies and the spillover to local government financing vehicles (LGFVs) could result in banking failures. We think the risk of a systemic crisis is low.

• Convolute: make (an argument, story, etc.) complex and difficult to follow.
• Raise fears
• Result in [noun]

LGFVs developed out of the limitations of tax revenue raising for local governments and have been a way for local governments to boost expenditure on infrastructure and invigorate the local economy.

• Boost expenditure
• Invigorate: give strength or energy to
  • the shower had invigorated her.
  • invigorate the local economy

Local governments are usually the sole or dominant shareholders of the LGFV, which issues debt that may be bought by banks and other financial institutions to pay for these projects – say, social housing or roads and bridges. The returns on these infrastructure projects are frequently insufficient to meet the debt service costs and repayment of loans, and so local government land sales to property development companies have traditionally made up the shortfall.

• Debt service costs
• Make up the shortfall

The central government and the People's Bank of China (PBoC) are both committed to preventing a systemic crisis. The playbook for local governments that have run into difficulties with LGFV debt so far is debt restructuring. This will of course squeeze the returns that banks expected on their exposure to this sector and lower their profitability. As a result, some banks may need to raise capital to make up for any losses.

• Playbook: a book containing a sports team's strategies and plays, especially in American football.
• Squeeze the returns
• Run into difficulties

As a result, financing difficulties are likely to be spread out over multiple years – this limits the risk of a systemic crisis but suggests that an extended period of adjustment and possibly constrained credit extension as well as weaker economic growth looks likely.

• Financing difficulties are likely to be spread out over multiple years

There seems to be a growing view within the European Central Bank (ECB) that in order to get inflation further under control, policy rate hikes might not be sufficient. In fact, the risk of worsening the current stagnation in the eurozone with additional rate hikes is high. In times of inverted yield curves, the ECB’s focus is likely to shift to non-interest rate tools again. Based on official comments since the September ECB meeting, an earlier end to reinvestments under the Pandemic Emergency Purchase Programme (PEPP) than the current “end of 2024” has become more likely.

• There seems to be a growing view that ...
  • There seems to be
  • Growing view
• In times of inverted yield curves
  • In times of

Consequently, an earlier unwinding of PEPP would return financial markets’ focus back to debt sustainability issues in the eurozone.

• Unwind: relax after a period of work or tension
  • the Grand Hotel is a superb place to unwind.

No single crisis ever repeats identically, but an earlier unwinding of the PEPP reinvestments clearly bears the potential to bring back debt sustainability tensions.

• Bear the potential
  • You can use it when you want to describe something as having the capability to realise some kind of outcome or result.

The plethora of risks to the US economy is highlighted by the wide range of views on where the Fed funds policy rate will end in 2024. On the positive side, we find that the Federal Reserve and a handful of other banks see little scope for any monetary policy easing in 2024.

• Plethora: a large or excessive amount of something:
  • *a plethora of* committees and subcommittees
  • Allen won a plethora of medals during his illustrious career.

On the other end of the spectrum, there are several prominent banks that see interest rates being slashed through the coming year. Here, the sense is that, after the most rapid and aggressive series of interest rate increases for forty years and banks rapidly tightening their lending standards, something will eventually “break”.

• On the positive side, ... . On the other end of the spectrum, ...
• Tighten lending standards

Given that small and regional banks which account for around 70% of lending to CRE still remain stressed, such a situation could see confidence deteriorate with more deposit flight, thus creating instability in the financial system. Lending conditions would tighten across the economy, threatening to choke off credit flow to broad swathes of the economy. The Fed would inevitably respond with interest rate cuts likely being rapidly priced in by financial markets.

• Confidence deteriorate
• Deposit flight: deposit flight, also known as capital flight or bank run, refers to the mass withdrawal of funds from a bank or financial institution by its depositors.
• Lending conditions would tighten
• Choke off: to prevent or limit something.
• Broad swathes of the economy
  • Swathe: a broad strip or area of something
    • vast *swathes of* countryside | *a* significant *swathe of* popular opinion figurative.