Are EU economic indicators a true reflection of Europe?

It's fair to say the questions of doubt over Eurozone leaders ability to steer the free economic zone clear of the dangers has been spoken ad nauseam from critics who insist the stark differences in ideology amongst member nations would lead to a break up. We've already seen the United Kingdom hold the first referendum asking its citizens to decide whether they wish to stay or leave the Eurozone Agreement.

But behind this current backdrop swirling through market sentiment is a tattered past littered with political discontent that's driven the major players within the European bloc to show face in light of market fears when divorce seems imminent. Needless to say each crisis produces an element of inconclusive resolve that's so much needed in finding a concrete solution around long term sustainability.

However the survival of this doomed currency union has only been kept alive with the aid of artificial economic stimulus in the form of a loose monetary policy involving consecutive rounds of quantitative easing that's only achievement being the presence of excess liquidity in the economy with hardly any uptick in activity.      

#Germany ≠ #France! German consumer #confidence rise to the highest level since at least 2005. pic.twitter.com/rEB915wmsw

— jeroen blokland (@jsblokland) August 26, 2016

The existing trend surrounding consumer confidence between the two biggest economies in the Eurozone, namely France and Germany, leaves many wondering how this indicator continues to defy logic besides the region being in perpetual crisis.

Although its important to note that the figures presented in the chart above have an oscillating nature by moving between negative and positive values with the position of the overall Eurozone consumer confidence index lying below zero indicating some degree of pessimism, the explicitly seen uptrend in both these charts leaves more questions than answers.

Will the Fed's hesitancy lead the market to see more risk?

Wait and see; that's the approach expected to be taken by the US Federal Reserve at today's announcement around its decision on interest rates that are yet to see further hikes after initiating the first such increase in rates in almost a decade following the Fed's December meeting. Since then the market has been largely affected with issues like China's economic growth stagnancy, a European refugee crisis and now a possible exit from the EU by the United Kingdom.

All these events have prevented the Fed from acting on their aspirations of seeing the Fed Funds Rate sit at a targeted level of 1.4%...pretty rich coming from a central bank that's been artificially fuelling asset bubbles since the introduction of Quantitative Easing.

Many at the time shot down the FOMC's projections by reiterating the weak global economic outlook that seemingly took hold of proceedings in the latter half of 2015 that was expected to last throughout the entire 2016. We've seen those conditions escalated in the first half of this year with advanced economies taking the front seat in terms of uncertainty, all showing signs of dragging down global growth.

5 things everyone will be talking about this Fed day https://t.co/BpeQaWs9ht pic.twitter.com/EGLOIU2ex1

— Bloomberg (@business) June 15, 2016

Brexit might be the excuse used this time but the Fed knows very well that if it continues to stall hiking interest rates the higher the likelihood will be for it to renegade on its normalisation policy.

The real risk presenting itself in the global financial system resides in the fact that central bankers are losing their influential hold on directing their economies by allowing world government's to fall back on monetary policy to reboot the global economy.

This no longer stands as a strong deterrent of deflation that poses a risk to an ever increasing debt mound that injected myopic confidence into a system with the results proving unsuccessful. It also shows a worrisome sign for the economic outlook that partly fed the miniscule economic growth numbers we've seen up until now.

Questions are being asked whether US Treasury's will follow in the footsteps of fellow nations such as Japan, Switzerland and now German in dipping below negative yields?

I don't think the answer to the question should be to speculate whether they could but rather what are the implications if they do and these nations should decide to start the normalisation process considering their bond instruments are amused "safe" and investors continue to flock into them to weather the financial storm.  

Update on Global Bond Yields as Global Growth continues to slow pic.twitter.com/h6jL2hcWlF

— Keith McCullough (@KeithMcCullough) June 15, 2016

Are negative yields taking over the bond market?

As chaos begins to descend into financial markets again after a hiatus that saw oil prices bounce strongly, the Chinese growth dilemma take the backseat and central bankers announcing additional rounds of quantitative easing measures to be put in place, the outlook remains hazy with investors increasingly placing their bets in the least perceived riskiest asset namely government bonds in the hopes that it could yield them some sort of meager return that's been absent in portfolio's in the last year.

Subsequently the demand for high quality government bonds issued by nations such as Japan, Switzerland and now Germany has been driven so far that yields have turned negative, a first time phenomenon that's left many puzzled.

Critics of the current monetary view of Negative Interest Rate Program (abbreviated NIRP) by advanced economies such as those mentioned above have spoken out at arm's length about the distressing outcome these nations could be headed into if they don't allow sanity to prevail in realising the limits of monetary policy having reached an irrevocable end at the extreme side of the spectrum.

A staggering $10 trillion bonds at face value currently trades underneath a yield of 0% which has been steadily rising as the situation spins out of control compelling investors to seek out riskier alternatives that hardly leaves much comfort in its placement. Parlously slated assets that are starting to feature in portfolio's include long dated and junk grade status bonds.

In the case of the former, investors feel it justified to give up the opportunity of lending capital out in the short term just for the opportunity to earn a positive yield!!! Furthermore the implication of such belief leads one to ponder the ramifications that will be felt when desperation no longer holds appropriate and the shift in policy direction takes hold, amounting to immense losses suffered as a result.

For all its worth if one outcome were to come of the present and the future it would be the underlying fact that no single controlling economic policy mechanism is able to steer forth the weight of economic activity without the assistance of the other. It would also stress the need that government's inaptness to respond in a constructive manner doesn't exist under the premise of socialist ideology instead working on a fallacious conception that infinite quantities of money are available at hand to allay the harshest economic circumstance which couldn't be farther from the truth.

The global economy is slowly metamorphosing into the ugly looking monster that reared its head in the Financial Crisis however this time the consequences will be worse.      

Paradigm shift!
Government bonds: 'return-free risky assets'! pic.twitter.com/CPRHqj0a6f

— jeroen blokland (@jsblokland) June 10, 2016