Financial markets are becoming increasingly vulnerable to a sharp correction that would, in turn, jeopardise stability, according to the International Monetary Fund (IMF). The IMF warned that investors’ expectations of continued support from governments and central banks has generated “a sense of complacency”.
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- Joe Biden took office as US President
- Share prices rose to 30-year highs in Japan
- The UK entered a new lockdown phase
Financial markets are becoming increasingly vulnerable to a sharp correction that would, in turn, jeopardise stability, according to the International Monetary Fund (IMF). The IMF warned that investors’ expectations of continued support from governments and central banks has generated “a sense of complacency”. This has created a dilemma for policymakers who need to balance the current requirement for accommodative financial conditions with the need to protect the financial system against any “unintended consequences of their policies”.
“The UK economy is likely to ‘get worse before it gets better’”
The UK entered a new lockdown phase early in January in a move designed to curb the intensifying spread of the virus. Schools and non-essential businesses were closed, and social interaction curtailed. Investor sentiment received a further knock from the news that travellers arriving in the UK will have to quarantine for ten days in Government-provided accommodation. Chancellor of the Exchequer Rishi Sunak warned that the UK economy is likely to “get worse before it gets better”. During January, the FTSE 100 Index fell by 0.8%.
The pandemic’s resurgence and consequent lockdown measures are likely to put a brake on the eurozone’s economic recovery, according to President of the European Central Bank (ECB) Christine Lagarde. Nevertheless, economic growth is expected to rally once the impact of the pandemic subsides and inflation is predicted to pick up, supported by “accommodative” fiscal and monetary policies. The Dax Index declined by 2.1% over the month.
In the US, politics took centre stage during January as Joe Biden was inaugurated as the country’s 46th President. Following riots at the US Capitol, the House of Representatives voted to impeach his predecessor President Donald Trump for inciting violence. During the month, President Biden unveiled his proposed “America Rescue Plan”, a package worth US$1.9 trillion that includes enhanced unemployment benefits and individual stimulus payments. He also appointed former Federal Reserve (Fed) Chair Janet Yellen as the US’s first-ever female Treasury Secretary. The Dow Jones Industrial Average Index fell by 2% during January.
Japan was placed in a state of emergency early in January as the country’s leaders sought to control the renewed spread of coronavirus. Despite this, the Nikkei 225 Index reached a three-decade high during the month, boosted by hopes of substantial financial stimulus in the US. Over January as a whole, the benchmark index rose by 0.8%.
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