This is our unsettling conclusion from the confusing amalgamation of macro data, policy developments, and wild market swings of the past few months. We had been warning for some time that—amid a global monetary policy tightening cycle of almost unprecedented speed and intensity—vulnerabilities were growing under the surface. To quote from our mid-December publication, we were afraid that “something, somewhere, snaps, triggering a chain reaction of financial market stress that then reverberates throughout the real economy, driving an abrupt shift from the appearance of resilience to the threat of failure.“

Three months later, something has clearly snapped. The question now is how severe a fallout from the banking sector turmoil? Much depends on the evolving policy responses and ringfencing measures authorities have already deployed and others that may still be in the pipeline. Big picture, it looks pretty good so far; after all, it was impressive to see how smoothly the acquisition of a global systemically important bank went.