Are markets reassessing the soft landing?
Regaining a measure of calm after an autumn of turmoil in 1998, international financial markets in 1999 turned their attention to prospects for the future. For much of the year, bond prices fell in Europe and the United States while equity prices rose in most of the world. This was in marked contrast with the pattern of most of the 1990s, in which rises in equity prices were generally supported by declining bond yields. The unusual market behaviour appears to have reflected new expectations about the global economy. Not only did market participants see improved growth prospects in most regions, they also seemed assured about the ability of central banks to keep inflation in check without pushing the economies into recession. Japan saw a significant stock market rally and flat bond yields, suggesting expectations of stable monetary policy in the context of an incipient recovery and some confidence in corporate and financial restructuring.