Rising U.S. dollar having impact on global emerging financial markets

According to a Dec. 7 Reuters news report, as the MSCI all-country world stock index is hovering around multi-year highs after rebounding from sell-offs in August and October, the Bank for International Settlements (BIS) has announced concerns that the rising U.S. dollar could impact emerging financial markets globally.

The downturns in global financial markets were triggered by uncertainty over the global economic outlook and monetary policy, as well as geopolitical tensions. The BIS said the sharp and sudden dips pointed to frailty in the markets.

“These abrupt market movements (in October) were even more pronounced than similar developments in August, when a sudden correction in global financial markets was quickly succeeded by renewed buoyant market conditions,” the BIS said in the news report by Reuters.

“This suggests that more than a quantum of fragility underlies the current elevated mood in financial markets,” it said in its quarterly review. “Global equity markets plummeted in early August and mid-October. Mid-October’s extreme intra-day price movements underscore how sensitive markets have become to even small surprises.”

The comments followed the organization’s warning in September that financial asset prices were at elevated levels and market volatility remained exceptionally subdued thanks to ultra-loose monetary policies being implemented by central banks around the world. “These divergent monetary policies, coupled with the dollar’s recent appreciation, could have a profound impact on the global economy particularly in emerging markets where many companies have large dollar-denominated liabilities,” the BIS added.

Separately, the BIS report said that international banking activity expanded for the second quarter running between end-March and end-June. Cross-border claims of BIS reporting banks rose by $401 billion. The annual growth rate of cross-border claims rose to 1.2 percent in the year to end-June, the first move into positive territory since late 2011.