Financial market buoyancy is fragile amid rising risks

2020 ◽  
Keyword(s):  
Financial Market ◽  
Emerging Market ◽  
Equity Markets ◽  
Equity Fund ◽  
Government Bonds ◽  
Content Type ◽  
Financial Conditions ◽  
Forward Price ◽  
Growth Prospects ◽  
Global Growth

Subject Financial market momentum. Significance Global bond and equity markets continue to rally after making their largest annual gains since 2010 last year. Markets are brushing off a plethora of risks, from the escalation in tensions between Tehran and Washington to concerns about weak global growth, particularly in Europe. While valuations are becoming dangerously stretched -- the forward price-to-earnings ratio of the benchmark S&P 500 index is at the highest since 2011 -- the absence of a credible catalyst for a sharp sell-off is helping to underpin positive sentiment. Financial conditions remain exceptionally loose. Impacts Demand for government bonds is building momentum and the ten-year US treasury yield is just 40 basis points above its all-time low of 2017. Emerging-market bond and equity fund inflows have momentum and while several risks could curb this, a sustained reversal is unlikely. The Shanghai stock market has lost 5% since Wuhan’s coronavirus outbreak spread beyond China on January 13; further falls are likely. Despite low market volatility, government debt markets are much more pessimistic than equity markets about global growth prospects.

Global growth and market prospects may improve in 2016

2016 ◽  
Keyword(s):  
Commodity Prices ◽  
Equity Markets ◽  
Commodity Price ◽  
The United States ◽  
Real Economy ◽  
Content Type ◽  
Positive Effects ◽  
New Energy ◽  
Growth Prospects ◽  
Global Growth

Subject Correlation between oil prices, equity markets and global growth. Significance Weak global growth and volatile equity markets in early 2016 illustrate how the real economy and distressed investors are struggling with rapid changes in such key parameters as the new energy and commodity price regime. This is because the 'losers' have to react quickly, plunging economies into recession before the 'gainers' generate any positive effects. These asymmetries, along with disappointing data, are spooking stock markets into a broad-based sell-off. After a nearly 10% fall in global equities between end-December and mid-February wiped as much as 6-7 trillion dollars off wealth, markets have rallied, especially in the United States, where key indices have recouped losses to trade at levels last seen at end-2015. Impacts A recovery in global growth prospects could emerge by mid-2016, stabilising commodity prices and underpinning gains in equity markets. Distressed sales of assets should abate and have less influence on markets. Easing fears over China will help markets rebound after the panic attack in early 2016. The consumer benefits of low energy and food costs have disappointed, but there could be higher spending throughout 2016.

The ECB will set the speed of global credit tightening

2018 ◽  
Keyword(s):  
Financial Market ◽  
Euro Area ◽  
Market Volatility ◽  
Government Bonds ◽  
Content Type ◽  
Bank Of Japan ◽  
Global Growth

Significance The ECB's plan could tip the scales towards tighter credit conditions globally. However, there are concerns about global growth -- particularly in the euro-area -- and government bonds are proving extremely sensitive to hawkish policy, fuelling financial market volatility. Impacts The VIX index of anticipated US equities volatility is back near a record low, but volatility may rise and remain higher than recent years. Fed rate hikes and US growth outpacing the euro-area will strengthen the dollar although the euro briefly rose on the news of ECB tapering. The ECB trails the Fed by some years in policy tightening and forming a plan for unwinding QE; this divergence will also boost the dollar. The Bank of Japan is buying vast quantities of government bonds and has no plans to remove stimulus as inflation is far below the 2% target. Investors are appreciating and trusting Fed Chair Jay Powell's attempts to speak plainly and less formulaically than predecessor Yellen.

Bond markets worry about higher rates under Trump

2016 ◽  
Keyword(s):  
Emerging Market ◽  
Inflation Expectations ◽  
Bond Markets ◽  
Fiscal Stimulus ◽  
Government Bonds ◽  
Risky Assets ◽  
Content Type ◽  
Growth Prospects ◽  
Severe Deterioration ◽  
Stimulus Package

Significance Equity markets have risen in anticipation of a fiscal stimulus package which would boost growth prospects. In contrast, demand and prices for government bonds, which were already under strain due to rising inflation expectations, have fallen due to fears of aggressive interest rate tightening to combat a debt-fuelled inflation surge. A sustained bond sell-off -- particularly one accompanied by a sharp rise in inflation -- could lead to a severe deterioration in sentiment towards 'risky assets'. Impacts Investors will see Trump's victory as a shift from ultra-loose monetary policy towards a greater reliance on fiscal stimulus. Stock market enthusiasm for tax and spending ideas could evaporate if these plans are not implemented or do not boost growth as expected. Copper had its best week for five years as Trump's stimulus plans are expected to boost demand and prices for industrial metals. The rouble was less affected by the election than other major emerging market currencies on hopes that US-Russian relations will improve.

Prospects for emerging economies to end-2016

2016 ◽  
Keyword(s):  
Fiscal Policy ◽  
Exchange Rates ◽  
Emerging Economies ◽  
Federal Reserve ◽  
Emerging Market ◽  
Commodity Prices ◽  
Content Type ◽  
Political Risks ◽  
The Us ◽  
Growth Prospects

Subject Prospects for emerging economies to end-2016. Significance Despite political risks causing bouts of volatility in countries such as Brazil and Turkey, emerging market (EM) growth prospects have improved moderately and asset prices have rebounded after the turbulence of early 2016. More stability in exchange rates has helped, with the US Federal Reserve (Fed) holding off raising rates. The rebound in commodity prices has been supportive, too, together with receding concerns about China's slowdown. Some countries have also eased fiscal policy to reduce social tensions risks.

Remarkable global market stability is unlikely to last

2017 ◽  
Keyword(s):  
Financial Markets ◽  
Emerging Market ◽  
Global Market ◽  
Parliamentary Election ◽  
Far Right ◽  
Content Type ◽  
Volatility Index ◽  
Bond Yield ◽  
Bond Funds ◽  
Growth Prospects

Subject Financial market volatility. Significance A more dovish outlook for US monetary policy and the weaker performance of the far right in the Dutch parliamentary election have contributed to subdued volatility and risk aversion in financial markets. The Euro Stoxx 50 Volatility Index, Europe’s so-called ‘fear gauge’, measuring anticipated price swings in European equities, is close to a historic low. However, other gauges of sentiment, such as outflows from ‘junk-bond’ funds, suggest investors are increasingly concerned that markets are too frothy. Impacts Oil prices fell by 10% in March amid oversupply concerns, and further slippage would complicate OPEC talks on extending the output curbs. Emerging market equities have risen by 11.1% this year as dollar weakness and improving growth prospects lure investors seeking returns. The spread between France's ten-year government bond yield and Germany's remains close to a four-year high, highlighting Europe’s variation.

Central Europe's lower yields may dampen bond outflows

2018 ◽  
Keyword(s):  
Czech Republic ◽  
Emerging Market ◽  
Oil Prices ◽  
High Yield ◽  
Corporate Debt ◽  
Bond Markets ◽  
Quantitative Easing ◽  
The Czech Republic ◽  
Content Type ◽  
Financial Conditions

Subject QE’s influence on Central Europe’s bond markets. Significance Hawkish signals from the ECB are adding to recent strains on global bond markets, causing German ten-year Bund yields to shoot up to their highest levels since July. The sell-off is contributing to sharp outflows from Central Europe’s local debt markets, already under pressure as monetary tightening starts in the region; the Czech Republic, which has raised rates twice since August, is suffering the largest withdrawals. However, the absence of large inflows since the ECB started quantitative easing (QE) in 2015 could help mitigate the fallout from its end. Impacts As OPEC members reaffirm their commitment to production cuts, oil prices are shooting up to their highest level in nearly three years. Sales of speculative-grade US corporate debt have had their strongest New Year since 2014, a sign of enduring demand for high-yield bonds. The three-year low in the dollar index will help keep financial conditions loose and buoy up emerging market currencies.

Blaming slower GDP on trade risks missing other perils

2018 ◽  
Keyword(s):  
Emerging Markets ◽  
Financial Stability ◽  
Policy Uncertainty ◽  
Content Type ◽  
The Past ◽  
Growth Prospects ◽  
Specific Factors ◽  
Contagion Risk ◽  
Global Growth ◽  
Country Specific

Significance Some of the downside risks the April WEO highlighted have materialised, while the FSR sees higher risks to financial stability. The explanations prioritise trade but many other common and country-specific factors also constrain growth prospects. Impacts Emerging markets (EMs) with firm fundamentals have lower contagion risk than in the past, but growth will increasingly diverge across EMs. New trade tariffs are more likely to contribute to sustained slower global growth than to trigger a recession. Goods trade is a small share of Chinese and US GDP but US policy uncertainty will hit investment worldwide, damaging productivity efforts.

Subdued inflation attenuates bond market strains

2018 ◽  
Keyword(s):  
The United States ◽  
Bond Markets ◽  
Equity Fund ◽  
Treasury Bonds ◽  
Content Type ◽  
Asset Bubbles ◽  
The United Kingdom ◽  
The Us ◽  
Us Presidential Election ◽  
Global Growth

Subject Bond markets outlook. Significance Eurostat today reported that the euro-area economy grew by 0.6% quarter-on-quarter in October-December 2017, and by 2.6% in the whole of 2017, outpacing growth of 2.3% in the United States and 1.8% in the United Kingdom. The yield on benchmark 10-year US Treasury bonds has surpassed the level it reached after Donald Trump’s US presidential election victory when investors positioned themselves for higher growth and prices. The tax bill and modestly rising prices have reinvigorated the ‘trumpflation trade’ of investors shifting from bonds to equities. Signs that the ECB may start withdrawing monetary stimulus faster than expected, coupled with robust global GDP growth, are putting further upward pressure on global yields. Impacts The US treasury secretary’s Davos remarks that a weaker dollar helps US activity could fuel further euro strength, challenging ECB policy. This month’s IMF update upgraded its global growth forecasts but warned of risks, especially asset bubbles and financial vulnerabilities. Global equity fund inflows are surging, fuelling dangerous overvaluations in certain sectors including technology.

scholarly journals Volatility Contagion across the Equity Markets of Developed and Emerging Market Economies

2019 ◽  
pp. 99-117
Author(s):  
Masazumi Hattori ◽  
Ilhyock Shim ◽  
Yoshihiko Sugihara
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Equity Markets ◽  
Emerging Market Economies ◽  
Fund Flows ◽  
Equity Fund ◽  
Market Economies ◽  
Developed Economies ◽  
The Global Financial Crisis

Using variance risk premiums (VRPs) nonparametrically calculated from equity markets in selected major developed economies and emerging market economies (EMEs) over 2007–15, this chapter documents the correlation of VRPs across markets, examining whether equity fund flows work as a path through which VRPs spill over globally. It finds that VRPs tend to spike up during market turmoil such as the peak of the global financial crisis and the European debt crisis; that all cross-equity market correlations of VRPs are positive, and that some economy pairs exhibit high levels of the correlation. In terms of volatility contagion, it finds that an increase in US VRPs significantly reduces equity fund flows to other developed economies, but not those to EMEs, following the global financial crisis. Two-stage least squares estimation results show that equity fund flows are a channel for spillover of US VRPs to VRPs in other developed economies.

scholarly journals Central bank's communication and markets' reactions: Polish evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Janusz Brzeszczyński ◽  
Jerzy Gajdka ◽  
Tomasz Schabek ◽  
Ali M Kutan
Keyword(s):  
Monetary Policy ◽  
Foreign Exchange ◽  
Financial Market ◽  
Foreign Exchange Market ◽  
Emerging Market ◽  
Public Information ◽  
Exchange Market ◽  
Market Segments ◽  
Content Type ◽  
The Impact

PurposeThis study contributes to the pool of knowledge about the impact of monetary policy communication of central banks on financial instruments' prices and assets' value in emerging markets.Design/methodology/approachEmpirical analysis is executed using the National Bank of Poland (NBP) announcements about its monetary policy covering the data from the broad financial market in its three main segments: stock market, foreign exchange market and bonds market. The reactions are measured relative to the changes in the NBP announcements and also with respect to investors' expectations. Autoregressive conditional heteroscedasticity (ARCH) models with dummy variables are used as the main methodological tool.FindingsBonds market and foreign exchange market are the most sensitive market segments, while interest rate and money supply are the most influential types of announcements. The changes of the revealed new macroeconomic figures had more impact on assets' prices movements than the deviations from their expectations. Moreover, greater diversity of the Monetary Policy Council (MPC) members' opinions on the voted motions, captured in the MPC voting reports, is associated with more cases of statistically significant NBP communication events.Practical implicationsThe findings have direct relevance for fund managers, portfolio analysts, investors and also for financial market regulators.Originality/valueThe results provide novel evidence about how the emerging financial market responds to monetary policy announcements. They help understand the nature of the impact of public information on financial assets' valuation and on movements of their prices, analysed comprehensively in three market segments, in the emerging market environment.

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