Global financial markets are facing heightened risks amid rising volatility and intensifying market turmoil but the threat level to the overall financial system remains modest, says New York-based rating agency Moody’s Investors Service in a new report.
Thanks to factors such as Brexit uncertainty and rising trade tensions between the United States and China, equity markets hit the skids in late 2018. The S&P 500 finished the year down by 6.2%, and the Eurostoxx, FTSE 100 and Nikkei 225 also declined by 14.7%, 12.5%, and 12.1%, respectively, the report says.
This rising market uncertainty was also reflected in wider global credit spreads. “In particular, rising political risk in Europe contributed to higher corporate credit spreads in Europe than in the U.S. in the second half of the year,” the report says.
Despite these pressures, the global financial system remains relatively healthy, according to Moody’s. “Overall, market conditions have tightened recently on the back of widening credit spreads, rising market volatility and tightened market liquidity, but in our judgement systemic risks as a whole still remain moderate,” says Colin Ellis, chief credit officer for EMEA at Moody’s, in a statement.
In particular, banks are better prepared to weather stressed markets today than they were three years ago, says the report. “In part, this reflects regulators requiring banks to increase their capital levels.”