US shares risk ‘sharp correction’ but markets seem complacent, IMF warns
US stock markets which have rallied during the AI boom are at risk of a “sudden, sharp correction” while government bond markets are under mounting pressure, the International Monetary Fund has warned.In its Global Financial Stability Report, published as policymakers gather in Washington for the IMF’s annual meetings, the Fund said that markets appear “complacent”.It highlighted “increasing vulnerabilities in the financial system,” including in stock and bond markets, and among “non-bank financial intermediaries” (NBFIs) or “shadow banks”, which it warned are now closely bound to the banking sector.US stock markets have repeatedly roared to record highs in recent months.The IMF said stocks do not appear as overvalued as they did during the dotcom bubble at the turn of the millennium.
But it said the gains are worryingly concentrated among the “magnificent seven” tech firms, which include Apple, Nvidia and Meta,“Concentration risk within the S&P 500 is at a historic high, with a narrow group of stocks spanning mega-cap IT and AI-related firms driving the broader index,” it said, adding that the magnificent seven account for 33% of the index,It warned “the possibility of mega-cap stocks failing to generate expected returns to justify current lofty equity valuations could trigger deterioration in investor sentiment and make the stocks susceptible to sudden, sharp correction,” adding, “valuations would collapse as a result, making the broader benchmark index vulnerable to downturns,”The Fund also expressed concern about the stability of government bond markets, with many countries expanding borrowing significantly, and increasingly dependent on “price-sensitive investors”, rather than domestic pension funds, for example,Analysing recent trends in these markets, including shifts in yields, which move inversely to prices, the IMF suggested they may be “on shakier footing than they seem”.
The IMF said stress in the markets for leading governments’ bonds remains unlikely – a “tail risk” – but would have “broad and disruptive ramifications for financial markets, given bonds’ role as key benchmarks and collateral”.The Fund renewed its warnings about the burgeoning growth of NBFIs in the global economy.These lenders, which face less onerous capital requirements than traditional banks, have expanded rapidly in recent years.The IMF pointed to the fact that mainstream banks are increasingly lending to NBFIs, raising the risks of a systemic crisis if they began to struggle.“Banks’ growing exposures to NBFIs mean that adverse developments at these institutions – such as downgrades or falling collateral values – could significantly affect banks’ capital ratios,” the IMF said.
It added that the sector should be better regulated: “The growing importance of NBFIs in financial intermediation highlights the need for sound oversight of this segment,”Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionIt said these vulnerabilities made it all the more important to press ahead with implementing new bank capital rules meant to forestall a future crisis – the Basel III regime,The US has not done so, prompting the Bank of England to delay it, too,In a sideswipe at the Donald Trump, the IMF also urged governments to resist interfering with interest rate policy, saying “central bank operational independence remains critical for anchoring inflation expectations and enabling central banks to achieve their mandates,”Trump has sought to remove the Federal Reserve governor, Lisa Cook, and repeatedly attacked the Fed chair, Jay Powell, for failing to cut interest rates as rapidly as the White House would like.
In another comment, couched in terms of the “G4” leading bond issuers – the US, the UK, Japan and the eurozone – but apparently aimed at Washington, the IMF added, “sustained trust in the institutional foundations in G4 economies has underpinned their sovereign bonds’ safe-asset status for decades and needs to be preserved.”
US shares risk ‘sharp correction’ but markets seem complacent, IMF warns
US stock markets which have rallied during the AI boom are at risk of a “sudden, sharp correction” while government bond markets are under mounting pressure, the International Monetary Fund has warned.In its Global Financial Stability Report, published as policymakers gather in Washington for the IMF’s annual meetings, the Fund said that markets appear “complacent”.It highlighted “increasing vulnerabilities in the financial system,” including in stock and bond markets, and among “non-bank financial intermediaries” (NBFIs) or “shadow banks”, which it warned are now closely bound to the banking sector.US stock markets have repeatedly roared to record highs in recent months. The IMF said stocks do not appear as overvalued as they did during the dotcom bubble at the turn of the millennium
World economy resilient amid Trump tariffs but outlook looks ‘dim’, says IMF
The global economy has shown “unexpected resilience” in the face of Donald Trump’s tariffs, but the full impact is yet to be felt, and outlook for growth remains “dim”, the International Monetary Fund (IMF) has warned.As policymakers gather in Washington for its annual meetings, the IMF has upgraded its forecast for global GDP growth this year to 3.2%, from 3% at its last update in July. Next year’s global forecast is unchanged, at 3.1%
EasyJet shares jump after report of potential takeover bid
Shares in easyJet jumped after reports that the Swiss-headquartered shipping company MSC was considering a takeover of Europe’s second-largest budget airline.The shares shot up 12% after a report from Corriere Della Sera, an Italian publication, which cited three unnamed sources familiar with the matter, their biggest bump in three years.A number of investors are considering a bid for easyJet, with options ranging from a majority stake to full control, according to the paper.Shares in easyJet pared back some of their earlier gains by midday after easyJet said it did not comment on speculation and MSC denied direct involvement in the talks, though were still trading up by about 4.5%
Tesco steps up UK sales as Asda struggles amid rising inflation
Tesco has grabbed a bigger slice of Britons’ supermarket shopping, as it stepped up sales and market share, while its rival Asda continued to struggle amid rising grocery inflation.The UK’s biggest supermarket increased its market share to 28.3% in the 12 weeks to 5 October, up 0.7 percentage points on a year earlier, while its sales advanced nearly 7%, according to Worldpanel by Numerator.By contrast, Asda’s market share fell 0
Young people are biggest victims of UK’s fragile jobs market
So much about the UK jobs market is influenced by Rachel Reeves. Without overdoing the blame, say many experts, the chancellor’s tough budget last year and the likelihood of a repeat next month hangs over employers and how they recruit and pay staff.The latest official figures show a rising number of young people out of work in the three months to August. More broadly, unemployment rose to a four-year high and the number of vacancies fell. And then there was the stubborn increase in the public sector wage bill, which outpaced the much more modest increase in private sector wages
UK labour market shows signs of stabilising after job losses
Britain’s employment market has shown signs of stabilising after a sharp rise in job losses earlier this year blamed on tax rises introduced by Rachel Reeves.As the chancellor prepares for her 26 November budget, figures from the Office for National Statistics (ONS) showed the unemployment rate rose to 4.8% in the three months to August, up from 4.7% in July. City economists had forecast the rate to remain unchanged
How to make cinnamon buns – recipe | Felicity Cloake's Masterclass
Punk Royale, London W1: ‘Someone shoved mystery slop in my mouth’ – restaurant review | Grace Dent on restaurants
Enjoying my meat that’s low on miles | Letter
‘It’s really good for the staff’: how restaurants adapt to customers drinking less
Helen Goh’s recipe for pumpkin cheesecake with maple pecan brittle | The sweet spot
Melbourne bar ranked best in Australasia and 19 in world