An unnatural calm
The world was on fire over the last quarter, both literally and metaphorically, as wildfires broke out across California, the Amazon rainforest and Australian bush, while protests erupted in South America, the Middle East and Hong Kong. Yet financial markets appeared to buck the trend, as indicators of risk stayed relatively muted.
But a closer look shows that investors seem to have banked on a revival of global growth – which is far from guaranteed – and that markets have been soothed by another injection of central-bank liquidity. The yield curve may have steepened, no longer indicating that a recession is imminent, but risks appear to be fomenting behind the relatively calm conditions.