Markets rebounded in November as positive Covid- 19 vaccine news and the US election outcome boosted sentiment, although concerns about the daylight between valuations and the economic outlook persisted, the Bank for International Settlement (BIS) has said.
The BIS, which stated this in its latest, “Quarterly Review,” noted that risky assets received a fillip in early November from positive vaccine news and the US election outcome, approaching and, in some cases, surpassing pre-pandemic levels.
According to the report, optimism about business conditions and continued policy support also fuelled markets’ buoyancy.
However, the report indicates that a divergence in the assessment of corporate vulnerabilities appeared to be emerging. Reason: while credit spreads in advanced economies compressed further, approaching pre-pandemic lows, banks actually tightened lending standards throughout the review period.
“Investors’ search for yield and the specifics of policy support appeared to underpin these contrasting developments,” the BIS said in a statement. Commenting on the report, Head of the BIS Monetary and Economic Department, Claudio Borio, said: “A certain amount of daylight between risky asset valuations and economic prospects appears to persist.
While markets have moved in the right direction in response to news about the vaccine, they are above or close to the levels that prevailed before the pandemic, when questions about overstretched valuations were already present.”
Further commenting on the report, the BIS said in its statement that: “Monetary policy has remained accommodative during this period, with central banks in major jurisdictions reiterating their commitment to act as necessary to support the economy during the fallout from the second Covid-19 wave.
In other AEs and some Emerging Market Economies (EMEs), central banks scaled up their asset purchases, while others cut policy rates.
“EME currencies’ strength partly reflected structural features of domestic production, with gains concentrated in economies focused on technology or more deeply involved in manufacturing global value chains rather than commodities.”