A sense of optimism spread across global financial markets


A sense of optimism has spread across financial markets in recent months, with investors convinced that the fight against inflation is entering its “last mile” and that central banks will ease their monetary policy in the coming months. future. Stock markets around the world have seen significant gains this year. Yield spreads observed on corporate and sovereign bonds have narrowed. In addition, the currencies of major emerging countries as well as capital flows towards them have held up well, and several pre-emerging countries have regained access to international capital markets.

And yet, that last mile could be fraught with challenges, as we show in the latest edition of the Global Financial Stability Report. We could see an intensification of geopolitical tensions, which could weigh on investor sentiment. Tensions in the commercial real estate sector have increased, which could put some lenders under increased pressure. Chinese financial markets remain weighed down by the problems facing the real estate sector.

Beyond these immediate concerns, debt-related vulnerabilities continue to grow: in many countries, the public and private sectors are borrowing massively, even if interest rates remain low. high and growth is unlikely to accelerate, according to World Economic Outlook projections.

Taking a step back, there is recent evidence that disinflation may be stalling in some countries and that core inflation may be stubborn in some sectors. In some cases, inflation excluding energy and food has been higher than analysts’ forecasts for several months. Higher than expected figures could call into question the last mile scenario and the optimism it generates among investors, with possible consequences of a correction in financial markets and increased volatility.

After decelerating rapidly around the world, inflation has recently changed trajectory in many countries. Data recorded this year shows that inflation excluding energy and food accelerated in the most recent three-month period compared to the previous three-month period in a number of large advanced and emerging countries (South Africa , Czech Republic, Germany, France, Italy, Philippines, United Kingdom, Sweden).

Some investors appear to believe that price pressures may not ease quickly. Inflation expectations in the major economies for the next year or two (driven by the difference between the yield on government bonds at their nominal value and their yield at their inflation-indexed value) are again trending upwards.

It should be noted that they remain above the levels of 2% targeted by central banks, as in France, the United States and the United Kingdom, or 3%, as in Brazil and Mexico. Other measures of inflation expectations, such as those from household surveys, appear more stable.

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