Markets worldwide have seen dramatic drops over the past week amid coronavirus fears, but thanks to reforms following the global financial crisis, they are proving “resilient,” the Bank of International Settlements’ (BIS) chief economist said on Sunday.
Presenting a quarterly review of the Basel-based BIS, considered the central bank for central banks, Claudio Borio, head of the BIS monetary and economic department, said that “markets had a rude awakening last week.”
He said that after an “initial, short-lived shock” last month, when the COVID-19 epidemic was exploding in China, “market participants had taken a rather benign view of the impact of the coronavirus on the global economy.”
Yet all of that changed last week as the global spread of the virus picked up, sending stock markets plunging to their lowest levels since the 2008 global financial crisis over fears that the disease could wreak havoc on the world economy.
The virus has now killed nearly 3,000 people and infected more than 87,000 worldwide, with an increasing number of new cases being reported each day.
“Acute concerns and uncertainty gripped market participants, as the expectation of a rapid V-shaped recovery now appeared grossly unrealistic,” Borio said.
He pointed especially to markets in risk assets, which “plunged as if no bottom was in sight: No one wants to catch a falling knife.”
Leading European stock markets lost more than 10 percent in just one week, while Wall Street fell 12 percent.
Crude oil prices tumbled as well, and analysts said that central banks, especially the US Federal Reserve, might have to shift into crisis-resolution mode with urgent interest rate cuts.
However, despite the sharp drops and widespread “turmoil and anxiety,” Borio said that “both market functioning and financial intermediation more generally proved resilient.”
“The post-crisis regulatory reforms aimed at strengthening financial institutions are bearing fruit,” he said.
However, he added that “uncertainty rules globally [and] the situation remains fluid.”
“One thing is for sure, financial markets will continue to dance to the tune of news about the virus and of the authorities’ response,” he said.
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