Global growth and sovereign debt concerns drive markets

Developments in financial markets during the review period largely reflect substantial downward reassessments of trajectories for economic growth. The prices of risky assets fell sharply in July and August as negative macroeconomic data cast a dark cloud over the strength of recovery in several major economies. Market participants' concerns about growth were amplified by perceptions that monetary and fiscal policies had only limited scope to stimulate the global economy.

In Europe, concerns about sovereign debt spread from Greece, Ireland and Portugal to Spain and Italy. This led to tighter funding conditions for European banks and even affected pricing in euro area core sovereign debt markets.

All these developments led to flows into safe haven assets, which appreciated in value. Yields on 10-year US Treasuries and German bunds fell to historic lows, while gold prices and the Swiss franc soared before the Swiss National Bank imposed a floor on the Swiss currency against the euro.