Cocktail of fears set to make 2019 worse

Rising interest rates around the globe combined with tensions over geopolitics and trade mean that the start of 2019 in markets might 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 on Sunday, is titled “Yet more bumps on the path to normal” and analysed 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 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 normalisation 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 the majority of major global stock indexes in negative territory for the year.

That misery, sadly, 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 set to push markets sharply lower as 2019 arrives.