The market saw a surprisingly sharp movement and it may be just the beginning, the IMF warns

In early August, a weak US employment report was disappointing. Similarly, Japan’s interest rate hike caused concern about the state of the global economy.

Among other things, because of these, investors started to empty their stock portfolios and the price fluctuations intensified.

The International Monetary Fund (IMF) is now recalling the events of August in its half-year review.

Japan’s Nikkei index fell 12 percent on Monday, August 5, the most since 1987, and trading had to be suspended three times. Major US stock indexes followed suit.

Head of the department that produced the IMF report Tobias Harris evaluate In an interview with Marketwatchwould it be possible that in the near future we would see a wave of sales of stocks even bigger than August. Although the global market usually signals optimism and a willingness to take risks, there may be strong exchange rate fluctuations.

According to the IMF, investors’ moods look rosy, even though the US presidential elections are unresolved and there is uncertainty in the geopolitical situation. The IMF warns that there is air in stock prices and sudden corrections are possible in the future.

The interest rate is slowly stabilizing

The IMF draws attention to the fact that unpleasant surprises in either inflation or economic growth can increase market volatility and make it difficult for the US central bank or other central banks to lower inflation.

According to the International Monetary Fund, with sudden shocks and increasing volatility, hedge funds may try to get rid of risky investments. The risk is also increased by the fact that investors using algorithms sell their holdings in a falling market.

The IMF report states that it expects further interest rate cuts from the central bank Fed, but considers the market’s expectations for the interest rate cut to be more positive than its own. The IMF anticipates that the Fed will not signal its intentions in the same way as before.

The IMF hints that the strong market reactions could even out if the Fed gave a better indication of its direction than at present. All in all, IMF department head Tobias Harris says that the general reference interest rate will fall to the level before the 2008 financial crisis.

Correction October 23, 2024 at 10:22 a.m.: Ingress incorrectly said that the share sale took place in August of last year. Actually, the share sale took place last August.