“The prospects for financial stability are clouded by greater macro-financial and geopolitical uncertainty along with growing trade policy uncertainty,” warns the ECB in its latest Financial Stability Report, presented yesterday by Luis de Guindos. “Underlying vulnerabilities make equity and corporate credit markets prone to greater volatility, and high valuations and concentration of risks, especially in equity markets, increase the likelihood of sharp adjustments.” In addition to the obvious “tensions “very harmful commercial trade”, one of the factors that influences this perception of increased risk is related to the fiscal policies of the governments of the euro zone and economic stagnation. “We have good news regarding inflation, but with respect to growth and activity the situation is quite fragile,” acknowledged De Guindos, who points out that “the risks for growth lean to the downside.” And leave the ball in the governments’ court. The ECB “is not all-powerful” to reactivate the weak growth of the eurozone, which is mainly due to structural problems,” he noted. De Guindos points to Germany and understands that it still has fiscal room to stimulate growth. Germany is also the focus of the wage problem, according to another indicator also published yesterday by the ECB, which is growing at 5.42% year-on-year, the largest increase since 1993, and threatens the slowdown in inflation. In Germany, they increased by 8.8% year-on-year in the third quarter. Related News standard No Salaries in the eurozone grow by 5.42%, the highest figure since 1993, and threaten the fight against inflation Xavier Vilaltella Collective agreements reflect an increase in salaries in the third quarter of 2024 that could put pressure rising pricesThis context of instability is reflected in long-term bond yields, which can create too much stress for non-banking entities due to their liquidity and leverage situation. It also speaks of sovereign vulnerabilities due to weak fiscal fundamentals and economic stagnation that may end up seriously affecting the quality of banks’ assets. Considers it advisable for macroprudential authorities to maintain existing capital reserve requirements, along with sound lending standards, and advises that the growing market presence and interconnectedness of non-bank financial intermediaries “require measures to increase resilience of the sector.”The ECB perceives stressed real estate markets and notes that “losses from exposure to commercial real estate risk increasing further” for banks and investment funds. “It also warns of a ‘bubble’ in AI-related stocks, which could burst abruptly if earnings expectations are disappointed.”
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