Markets confront shifting expectations
From the summer to early autumn of 2000, financial markets moved from a climate of cautious optimism to one of growing apprehension. In July and August, macroeconomic data releases and policy measures signalled a more or less benign financial environment. In September, however, as macroeconomic and corporate earnings forecasts were revised downwards and oil prices rose, market participants suddenly began to show signs of nervousness. In the equity market, a brief rally in August was decisively reversed in September and October. Apprehension spread to corporate bonds, which experienced wider credit spreads and increased scrutiny of highly leveraged issuers, including telecommunications firms. These events were accompanied by a resumption of the euro’s weakening trend, which continued until the end of October. Among other things, this trend appeared to reflect renewed market concerns about growth prospects in the euro area.
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The views expressed here do not necessarily reflect the views of the BIS member central banks.