ESMA sees prevailing market uncertainty as downside risks rise

Aug 31st '23

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, today publishes the second Trends, Risks and Vulnerabilities (TRV) Report of 2023.


ESMA sees that financial markets are adapting to the new economic environment of durably higher inflation and interest rates, however risks remain high in ESMA’s remit. Markets are set to remain very sensitive to potential deteriorations in economic fundamentals or risks in the financial sector.


Verena Ross, Chair, said: “Financial market sentiment improved in the first half of the year, despite the market stress originating from the US banking sector. Nonetheless, the economic outlook remains fragile and uncertainties continue to drive markets. ESMA is therefore keeping the overall riskassessment acrossits remit at the highest level.


There is a high risk of corrections in a context of fragile market liquidity in equity and bond markets, with short-term risks for consumers due to volatility and the impact of inflation on real investment returns.


Maintaining an environment of trust is of a particular concern to ESMA. In this context, attention must be paid to the risk of greenwashing, as the EU market for sustainable products continues to grow at a robust pace.“


Financial markets rebounded in the first half of 2023 against the background of lower energy prices and expectations of a slower pace of monetary tightening. However, this improvement remains fragile. The downside risks have increased while there remains a high degree of market and investor nervousness.


Main findings:



Source: ESMA