Macroscope | Why are stock markets so complacent when the world is in crisis?
The lack of financial market volatility amid economic uncertainty related to geopolitical risks should worry more people
Financial markets are supposed to act as barometers of an economy but, if that is true, the glass is now broken in the case of the world’s largest markets. They continue to show “set fair” even as potentially huge and unprecedented financial storms approach.
The most obvious example is that stock markets continue to sail on blithely as though there were not a cloud in the rapidly darkening sky, while the needle on volatility gauges hardly flickers as systemic risks rise rapidly.
Neither, probably, will the fact that confidence indicators in leading economies have slid sharply or remain stuck in negative territory, according to the findings in the latest Brookings-Financial Times Tracking indices report.
Despite their “seeming calm”, delegates to the annual meetings “will be filled with trepidation, aghast at mounting global risks”, wrote Mark Sobel, US chair of the Official Monetary and Financial Institutions Forum before the meetings. Yet, he added, “financial institutions seem stunningly complacent in the face of these daunting risks”.
Reports from both the IMF and World Bank acknowledged that the battle against inflation appears to have been won, paving the way for monetary easing and a potentially soft economic landing.
