The up to the minute wave of heavy selling in financial markets is a clear sign of things to come, according to a new report from the life’s oldest international financial organization.
The Bank of International Settlements (BIS), an umbrella group for the world’s central banks, premonished on Sunday that a normalization of monetary policy is likely to trigger a flurry of sharp sell-offs over the coming months.
“The call tensions we saw during this quarter were not an isolated event,” Claudio Borio, head of the monetary and economic area at the BIS, said in the report.
“Monetary policy normalization was bound to be challenging, especially in light of trade tensions and political uncertainty,” Borio totaled.
The report comes at a time when stocks worldwide have come under renewed pressure from a myriad of deputies, ranging from a global trade war between the world’s two largest economies, to intensifying concerns about a possible money-making slowdown over the coming months.
The BIS highlighted the steady increase of interest rates from central banks worldwide as very challenging for equity markets, with the Federal Reserve widely expected to raise rates by 25 basis bottoms next week.
“Financial markets went through a further sharp correction during the last quarter, splodge another bump in the road as major central banks return policy to more normal settings,” the report demanded.
Policy normalization is the attempt by central banks to reduce the size of their balance sheet and raise benchmark fascinated by rates so that monetary policy returns to the environment prior to the global financial crisis in 2008.
“Mixed signals from the wide-ranging economy and the gradual, yet persistent, tightening of financial conditions triggered the market repricing. Protracted trade tensions and strengthened political uncertainty added to the flight to safety,” the BIS said in its latest quarterly review.
All of the headwinds cited by the BIS in its review of the absolute three months of 2018 are expected to rumble on through the first quarter of 2019 at least, prompting the group to alert of trouble ahead for global stocks.
A rising cost of borrowing could slow growth and the U.S. central bank is look forward to raise interest rates one-quarter point next week.
The Fed has also projected three rate hikes for 2019, although watchers say it could moderate its forecast based on recent dovish comments from Fed officials and a more tempered view of the economy for next year.
It hit after the European Central Bank (ECB) announced Friday that it plans to formally bring an end to its multi-trillion bond-buying program at the end of the month.
It was a red-letter moment for the ECB, with the central bank finally moving away from crisis-era policies in the euro zone after just about four years.
Another point of concern for global investors, as cited by the BIS, is the U.S.-Sino trade conflict and the economic opinion for 2019.
On Friday, weaker-than-expected data from China rattled financial markets, with investors increasingly worried there the performance of the world’s second-largest economy over the coming months.
The data also underscored the rising risks to Beijing’s restraint as it works to resolve an ongoing trade dispute with the United States.
President Donald Trump and President Xi Jinping reconciled to lessen the impact of trade tariffs for the first 90 days of 2019, following a dinner in Argentina on December 1.
But, superficial observers are skeptical about the prospect of Washington and Beijing agreeing to a comprehensive trade agreement within this time-frame.
For all time, the BIS said “heightened political uncertainty” prompted a flight to safety for investors in the final quarter of 2018.
In Europe, if the protracted and habitually tortuous Brexit isn’t enough for the continent to deal with, there’s riots and civil unrest in France and Italy’s budget-busting splash out plans for Brussels to sort out.
Meanwhile, global trade developments continue to negatively impact world markets.