Volatility challenges risk-taking
The risk-on mood that prevailed for much of the review period in global financial markets faced mounting challenges from spells of market volatility. These coincided with broader policy uncertainty amid growing concerns about an economic slowdown and unease around stretched equity valuations. Yet despite some retrenchment, valuations of risk assets remained at historically elevated levels, prompting questions about the consequences of any swing in investor sentiment.
The artificial intelligence (AI)-related boom in equity prices continued to shape financial market developments. Large cap technology stocks continued to outperform for much of the review period, buoyed by strong earnings. However, they showed signs of retrenchment towards the end of the period due to greater investor wariness about stretched valuations. Japanese stocks rallied following political changes, which raised expectations of an expansionary fiscal stance. European stocks similarly benefited from positive sentiment. Equity prices in emerging market economies (EMEs) rallied and in many cases posted larger gains than in advanced economies. Nevertheless, the positive tone was punctuated by episodes of volatility.
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Shifting currents in FX and interest rate derivatives
The December BIS Quarterly Review is a special edition delving into the data collected from more than 1,000 banks in 52 jurisdictions, uncovering the wider trends and structural shifts at play in FX and interest rate derivatives markets. Watch the highlights in our video with Hyun Song Shin, Andreas Schrimpf and Goetz von Peter.
The views expressed here do not necessarily reflect the views of the BIS member central banks.