The financial markets have been acting strangely for about a year now. Last summer, the Chinese stock exchange went through a mini-crash which translated into a ‘run for safety’ in the forex market. USD/JPY tumbled to around 116 from 122 in a day and EUR/USD climbed to 1.17. The waters calmed afterwards, but the negative sentiment remained in the financial markets. The traders were very cautious since then and every time a negative event occurred somewhere in the world everyone would run for the hills and the volatility would increase.  

Is the global economy headed for another crisis?

This negative sentiment had continued since then and has gotten worse recently. The Shanghai Composite index has been declining and the weakness later spilled into other stock markets around the globe. The volatility has increased, particularly since January this year. All this was manageable but the last 2-3 trading days everything pointed to a different, drastic scenario. Everyone has been looking towards China for the negative sentiment; even though the Chinese markets have been closed this week due to the Chinese New Year, the declines in the global financial markets have continued. The Japanese yields have slipped into negative territory and USD/JPY broke below 116 despite the BOJ taking additional steps to accommodate about two weeks ago. So the question is, are we heading towards another financial crisis like the one we saw in 2008? We will have to wait and see but hope for the best.