In a report issued in late June, the Bank of England warned that real, material risks in world markets are increasing.
In some recent blog entries, we’ve talked about how stocks and shares connected with specific nations and market sectors could lose value due to trade war tariffs and policies. You might therefore think that the Bank of England’s report doesn’t contain any new information. However, the fact that the Bank of England has issued such a warning is significant, as we’ll explore here.
In addition to the reasons we have already alluded to, the report cited rising corporate debt in the US and China as a prime reason for increased risk in the global markets. The USA and China are the world’s two largest economies, and they influence every other economy on the planet.
As corporations in these countries increase their debts, it affects the risk in the global debt markets. This increases overall financial instability and has a knock-on effect on other financial markets
What’s more, when companies increase their debts, they increase the level of uncertainty surrounding their long-term viability, which also increases the risk attached to their stocks and shares. In turn, this affects the viability and risk-levels of other corporations that depend on them, regardless of where they are in the world.
The report also suggested that over-reliance on LIBOR might be decreasing levels of financial stability.
However, the real significance of the report lies in the fact that it was published at all. The fact that the Bank of England is acknowledging the increase in global market risks means that the risks are real and major.
Of course, experienced traders know that risk isn’t necessarily a bad thing. Volatile currency values and share prices can rise dramatically as well as fall.
By speculating on currencies and investing in stocks and shares that have a good chance of increasing their value, traders can make surprising quantities of money at times like this.