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- Financial markets are set for another turbulent year in 2019, the Bank for International Settlements has warned.
- The past quarter has seen global stock markets drop sharply, and that looks likely to continue next year, the institution said.
- “The market tensions we saw during this quarter were not an isolated event,” Claudio Borio, the head of the Monetary and Economic Department at the BIS, wrote in its quarterly review.
- Normalizing monetary policy, fears over rising leveraged loan risks, and geopolitical uncertainty are all to blame for major market woes.
Rising interest rates around the globe combined with tensions over geopolitics and trade mean the start of 2019 in markets may look just as volatile and turbulent as this year.
That’s according to the umbrella body for central banks, the Bank for International Settlements. The BIS quarterly review, released Sunday, is titled “Yet more bumps on the path to normal” and analyzed the drivers behind the markets’ rocky year.
“Mixed signals from the global economy and the gradual, yet persistent, tightening of financial conditions triggered the market repricing. Protracted trade tensions and heightened political uncertainty added to the flight to safety,” said Claudio Borio, the head of the Monetary and Economic Department at the BIS.
“The market tensions we saw during this quarter were not an isolated event,” he said in separate remarks, according to Markets and Money. “It was not the first, and it will not be the last. It was just another bump along the narrow path of monetary policy normalization.”
“Monetary policy normalization was bound to be challenging, especially in light of trade tensions and political uncertainty.”
2018’s market environment has been marked by large swings in both directions, with investor sentiment moving seemingly from jubilation to utter misery at the drop of a hat. Misery, however, has predominated in the second half of the year, with most major global stock indexes in negative territory for the year.
Unfortunately for investors, that misery looks set to continue, with rising inflation, the continued swell of the leveraged loan market in the US, and a weak European banking sector all threatening to push markets sharply lower.