The world is not yet fully out of the aftermath of the 2007-2008 financial crisis, when the question is already raised on the risk of another crisis. The question is whether it is possible to move from a regime of growth without inflation and with low rates to one of higher volatility, inflation and interest rates without a financial crisis or any macro-economic shock… Such are the stakes for 2018. The excessively low bond yields, the credit bubble in China or the so-called “excessive” valuation of some equity markets are generally referred to as risky segments, while a badly perceived monetary policy decision or a sudden rise in inflation expectations appear as the most credible crisis-triggering factors, via a repricing of risk premiums. Do not underestimate the crisis-accelerating factors, currently significant, that are potentially the low liquidity of the fixed income markets, the concentration of the positions and the mimicry of investors. However, it is very difficult to bet on a major financial crisis, such as the ones that prevailed in 2000 or 2008. Among the reassuring criteria are the good health of banks, a favourable macroeconomic situation, economies with lower sensitivity to inflation than before, and central banks still credible, predictable, good communicators.
The scenario that seems most likely for 2018 is not a crisis scenario, but rather more nervousness. The market context has indeed evolved. Interest rate policies have reached their limit, the “ era of low interest rates forever” is over, the great period of disinflation has ended, and QE programmes will gradually disappear… All this means that the repricing of risk premiums will inevitably result in phases of greater volatility, short and long-term interest rates increases, wider credit spreads, and no doubt regular shocks in the equity markets.