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International Markets React to Low Yields & Low Oil Prices

Social and political unrest in South America prevailed as the Olympics in Rio were concluding. Brazil voted to impeachment its president due to improper handling of government funds while the continent’s top oil producer, Venezuela, continues to struggle with the oil price collapse which has caused widespread food and medical shortages. Such instability can hinder local financial markets and foreign companies trading with South American countries.

Fallout from Britain’s vote to exit the EU has led to Britain’s central bank, The Bank of England to launch its biggest stimulus package since the financial crisis began. It will be its first rate cut in more than seven years with a new £70 billion bond-buying program. The bond-buying program will include £10 billion sterling denominated investment-grade corporate bonds and the remaining £60 billion will comprise purchases of government debt. Britain’s central bank also issued a negative outlook, stating that British households face a poorer future. The Bank of England is forecasting that unemployment will rise, housing prices will fall and inflation will go up.

Emerging country equities and debt continue to be in demand as developed country bonds flirt with negative yields. The amount of global negative yielding debt has now risen to $12.64 trillion, and is dominated by European and Japanese bonds. 

Sources: Eurostat, Reuters, Bloomberg, Bank of England