NEWSLETTER of October 31, 2025

The following content has been added at finexpert:

Allianz Research
GLOBAL INSOLVENCY OUTLOOK 2026-27: DON'T LOOK DOWN!
Trade rerouting and (energy) deflation have prevented tariffs from unleashing the wave of corporate insolvencies many feared. Since early 2025, the Trump administration’s sweeping import duties (11% effective rate in August; 14% likely by year-end) have reshaped global trade flows without triggering a surge in US insolvencies. Large firms were cushioned by foreign exporters’ price moderation and the widespread rerouting of goods through third countries such as India and Vietnam, which kept costs in check. Tariffs have also shielded US domestic firms against foreign competition. Over the first half of 2025, we estimate that tariffs contributed to decrease insolvencies by -4pps while a positive demand effect managed to offset most of the negative effects from increasing input costs for US firms, resulting in a modest +4% increase overall. >more

Institut der deutschen Wirtschaft Köln
DIE ZUSAMMENSETZUNG DER KOMMUNALEN AUSGABEN IN DEUTSCHLAND – EINE BETRACHTUNG ÜBER 30 JAHRE
This article examines the expenditure side in order to get to the bottom of the question of how municipal expenditure is distributed among various tasks and how the figures have shifted over time. To this end, it looks at the development of expenditure shares broken down by task since the early 1990s. In addition to the share of certain expenditures in total expenditures, the development of per capita expenditures and expenditures relative to gross domestic product is also examined. Furthermore, the overall development of municipal expenditures is considered. The results show that (inflation-adjusted) municipal expenditures per capita remained virtually unchanged in the 1990s and early 2000s. Between 2004 and 2022, however, expenditure increased by 40 percent and rose again significantly in 2023 and 2024. Relative to gross domestic product, the current level has returned to that of the early 1990s and was even significantly exceeded last year.  >more

Deutsche Bank Research
DID INVESTORS ESCAPE TO EUROPE IN H1? WHAT WE KNOW AND DON’T KNOW
In the first half of this year, investors seemed to reassess their global allocations in light of surging economic policy uncertainty in the US. US stock markets underperformed their European counterparts, and the dollar weakened substantially versus the euro. Market participants suspected a degree of capital flight from the US. However, there has not been a significant redirection of capital from the US towards Europe so far. The slowdown in flows to the US across direct investment, portfolio investment and other investment was not unusual. Instead, the main driver of dollar weakness was probably the increased hedging of foreigners’ dollar positions. >more

Deutsche Bank Research
TRACKING GERMANYS FISCAL REGIME SHIFT
With the parliamentary approval of the 2025 federal budget, Germany’s fiscal expansion is now about to go “live”. In this research note we lay out where the federal government plans to ramp up spending by the year-end, and project where federal spending may actually land. While the federal government plans around EUR 564 bn in total spending for this year, we believe that “only” around EUR 521 bn might be realized, with defense and infrastructure investment spending likely to meaningfully undershoot budget targets due to implementation lags. On our projection, at an estimated 2.2% of GDP, the federal deficit looks set to fall meaningfully short of the government’s own 3.3% deficit target. All in all, the 2025 budget deficit of the general government is unlikely to widen at all at about 2.6% of GDP. In any case, the change in fiscal direction will become apparent in the budget data only next year. >more

FINANCIAL ADVISORS AND INVESTORS’ BIAS
Marianne Andries, Maxime Bonelli, and David Alexandre Sraer
2025
We study an intervention by a brokerage firm providing advisory services to high-net-worth investors. In 2018, the firm changed the information displayed on its internal platform, so that financial advisors could no longer observe which clients’ holdings were in paper gain or loss. Using data on portfolio stock transactions between 2016 and 2021, we show that, while all investors exhibit a significant disposition effect before 2018, i.e., a greater propensity to realize gains than losses, highly-advised investors see their bias significantly reduced afterward. Our paper shows that by appropriately manipulating advisors’ information, financial firms can successfully reduce their clients’ biases. >more

CONVENIENCE YIELD, INFLATION EXPECTATIONS, AND PUBLIC DEBT GROWTH
Jian Li, Julie Zhiyu Fu, and Yinxi Xie
2025
We present new facts on how convenience yields fluctuate with macroeconomic variables and fiscal policy: the convenience yield of long-term Treasuries is negatively correlated with inflation expectations, and inflation expectations predict future debt-to-GDP growth. To rationalize these findings, we incorporate the convenience yield into a macro-finance model with endogenous fiscal policy. The government finances deficit shocks partially through higher inflation and partially through more future borrowing, which reduces the convenience yield today. The feedback loop between the convenience yield and future debt supply amplifies the effect of fiscal shocks. We further verify this channel using empirically constructed exogenous deficit shocks. >more