It’s been another remarkable day in financial markets and it, unfortunately, doesn’t feel like the worst is behind us.
Fear has once again gripped the markets, concerned about a repeat of past crises – one in particular, for obvious reasons – and the implications for the financial system and the global economy. Of course, this is natural when so little is known about the situation and what it ultimately means for the health of the rest of the system.
In the absence of facts, everyone is left with little choice but to speculate; frankly, what little commentary we’ve had hasn’t helped. Quite the opposite, in fact. Ignoring the expected comforting words from Credit Suisse Group (NYSE:CS) Chief Executive Ulrich Koerner, and Chairman, Axel Lehmann, those of its largest shareholder, Saudi National Bank, and the lack of input from the central bank and regulator have only fueled fears.
We’re now left in a situation in which stock markets have tumbled, banks worldwide have been pummeled, and everyone is wondering just how bad the situation will get. The bill may be coming due to more than a decade of rock-bottom interest rates and a massive quantitative easing experiment.
Perhaps the market reaction and all of the speculation today are overblown. Still, in the absence of action or clarity from the relevant authorities, which is lacking currently, it’s hard to imagine the panic subsiding. Perhaps the silence is evidence of them attempting to get that clarity themselves and deal with it but I get the feeling it’s going to be a very eventful end to the week.
Against this backdrop, it’s anyone’s guess what the ECB will do tomorrow. Markets are currently anticipating a 25 basis point hike, but we’ve seen how much rate expectations have changed over the last week. And then you have to wonder what exactly would soothe market jitters. No change? Or does that suggest something deeply concerning is occurring? Or stick to 50 and pretend like nothing is going on? I just don’t know at this point.