A fragile calm in international financial markets has given way to all-out turbulence, the Bank of International Settlements (BIS) said on Sunday, warning of a “gathering storm” which has long been brewing.
In its previous quarterly report, watched closely by investors, the BIS — which is known as the central bank of central banks — warned of an “uneasy calm” in international markets, after monetary authorities took stabilizing measures to offset the consequences of a dramatic slowdown in China.
In the bank’s new report, BIS chief Claudio Borio said “the uneasy calm has given way to turbulence.”
“The tension between the markets’ tranquility and the underlying economic vulnerabilities had to be resolved at some point. In the recent quarter, we may have been witnessing the beginning of its resolution,” he added.
“We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time,” he said.
Borio surveyed the major disruptions over the past three months, from the first post-crisis interest rate hike by the US Federal Reserve in December last year, to accumulating signs of China’s slowdown.
In what he termed the second phase of turbulence in the last quarter, Borio said markets were plagued by fears about the health of global banks and the Bank of Japan’s shock decision to impose negative policy rates.
Persistently weak oil prices drove turbulence throughout the quarter, he said.
Seeking to find a common threat for the various global trends at play, Borio said “debt is what helps us understand apparently unrelated developments.”
Public sector debt has risen broadly, while private sector debt rises have been concentrated in emerging markets, he added.
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