Why are global markets so quiet?
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Hello and welcome to World Business Report from the BBC World Service. I'm Roger Hearing, and on this edition, the strange calm of global markets, despite the upheavals of recent months. What's going on? Also, a group of economists, backed by the Vatican, calls for a reshaping of the international financial system to help indebted countries...

But why do those nations keep taking on new debt? Basically, you don't have enough resources to allocate to your priority spending. That's actually sort of crowd out all the resources that are needed for all the priority, whether it is health care, whether it is education, whether it's infrastructure.

How secure are international supply chains? We've got a new survey to inform you about. And the push to turn urban waterways into lucrative tourist attractions. But first, no one could dispute that a lot's been happening in the world over the last few months. Wars, natural disasters, and a man in the White House who almost defines unpredictability. Yet global markets have remained remarkably, perhaps worryingly, quiet.

As in the Sherlock Holmes story Silver Blaze, they're the dog that didn't bark in the night.

Stock prices haven't collapsed, energy prices haven't rocketed, and although interest rates on US treasuries have risen, everyone, everything has been within normal parameters. But should the calm in the markets actually be a reason for concern? Gillian Tett is the chair of the editorial board of the Financial Times, also the provost of King's College, Cambridge. She's been writing out all this, and she joins us now. Gillian, thanks so much for being with us. First of all, what do you really mean by the silence of the markets?

Well, if you look at what's happened in the last few weeks in terms of geopolitics,

It's absolutely remarkable how threatening it potentially is, whether you're looking at the events in the Middle East or around Ukraine and in so many other parts of the world. And you would normally expect to see markets really showing some sign of, if not panic, then really deep concern. And instead, what's actually happened is that after the April 2nd announcement of the so-called Liberation Day tariffs,

you did see the equity markets fall very dramatically. But they've since then come back again and they're pretty much near record highs now.

So the question I think many people are asking is, why are the markets so calm amid all the noise about what's happening in terms of politics? And will that calm be maintained or not? Yeah, well, I suppose people might point to what's been described as TACO, that acronym. Trump always chickens out. Perhaps the markets simply don't believe that he's going to do what he says he will. So they say, well, let's ignore the noise and carry on.

Well, absolutely. It was actually my colleague at the Financial Times, Robert Armstrong, who came up with this brilliant TACO acronym. And certainly there are a lot of people betting on the idea that his bark is always worse than his actual bite. So that's one potential explanation. I mean, another explanation is that there's really a time lag effect happening in that most of the impacts of the measures that have been announced in terms of the tariffs or the deportation of immigrants, which potentially is going to really push up inflation and

create bottlenecks for the US economy. You know, all of those things are going to take a long time to actually feed through the tangible data. Or the other issue lies with investor psychology and the fact that the world today is so darn confusing. There are so many things happening at once that people have, if you like, information overload, they can't pass it all. So they're basically sitting a bit frozen, trying to wait and see what's going to happen next.

And it's quite different from the COVID pandemic because back then there was one really big clear shock to deal with. And if you like using traders language to price into the markets, now you have numerous different shocks and that's very disorientating.

It is, but I suppose you could take the optimistic view, well, maybe the market's just being mature about this, that actually, you know, we should be relieved and indeed grateful that there aren't these big ups and downs. I remember people in the past saying, oh, the markets, it just reflects what the traders happened to feel, you know, whether they had a good breakfast that morning. So, in fact, if things are staying as the same, it suggests perhaps that this is a way in which the market has matured. Well, you could absolutely say it's a way the market has adapted because the reality is that most of the people, you know, trading in the markets today are

probably grew up in an era, at least in the West, when things were pretty calm. And so every time there was a big shock, like an outbreak of war, they would react in a very dramatic, panic-stricken way. And we saw that during COVID, remember, when the supply chains shut down and traders went, oh my goodness me, this is going to call us a deep depression. Now, after all this series of shocks, whether it's the...

pandemic or the Ukraine war or the financial crisis, people have almost got used to shocks. So maybe it's a sense of maturity and adaptation. Or maybe it's because people still think the fundamentals in the world economy are still pretty good. The World Bank just slashed its outlook for growth this year to 2.3%. But that's still growth. And it's still not exactly a sign of a depression emerging. So maybe

For once, people are becoming cheerful. Well, maybe. But Gillian, I have to say that it doesn't sound to me like you're taking that view particularly. I mean, just the headline on your piece for the Financial Times, the markets are silent and that is worrying. So what are you worried about? Well, I didn't actually write the headline, I must say. I think the key thing to understand is what we're dealing with is a situation of great fragility.

And it's a bit like that cartoon character Wile E. Coyote who runs off a cliff and keeps peddling furiously in midair and stays at the same level until they suddenly look down and panic and fall.

And as long as people think it's all basically going to be OK and or they're too disorientated to actually sell things, then it will carry on being OK. But I do think we're dealing with a situation of growing fragility. And what that means is that if we have new shocks coming along, suddenly we could have, if you like, this whole sentiment cracking in a way we can't predict. We don't know when that's going to happen. It's a bit like trying to predict an earthquake.

But you shouldn't – the fact you can't predict an earthquake means that you shouldn't recognise that risk is there and prepare. So if you're not panicking, it's because you're not really aware of what's going on almost? No, I wouldn't say panic is the right reaction right now. It's simply that no one should be complacent and assume that the silence around the market amid all this crazy geopolitical noise –

means that they can just relax and take their eye off the ball. Do you think this is going to continue, though? Because we've talked about a lot of shocks coming to the system, and heaven knows we've seen a lot in the last three months, but it seems to be accelerating, if anything. Is there a point where, you know, it's the famous catastrophe theory, which everything falls off a cliff, and is that just coming in the near future?

Well, the image I would use is a bit more like the game of Jenga, where you keep taking block away after block away. And so what you have right now is you have oil prices potentially coming under pressure because of the disruption in the Middle East. You've got supply chain shocks that could certainly be emerging because things like the Strait of Hormuz could easily become blocked.

You've got the tariffs that are forcing businesses all around the world to dramatically reorientate their supply chains too and have tremendous amounts of uncertainty. You've got a deportation of lots of workers potentially in America, inflation. And the most important thing that people aren't talking nearly enough about right now, which is rising levels of debt.

which just keeps growing and growing. And of course, President Trump is threatening to add even more debt to America because of the new big, beautiful bill. So you add all of that together and none of those in themselves are enough to cause the whole mound of Jenga blocks to come tumbling down. But

at some point they could act up to a very nasty type of vulnerability. Let's hope not. Gillian, thank you so much for being with us. Gillian Tett there. Well, let's talk to someone who studies the markets on a day-to-day basis. Chris Lowe, Chief Economist at FHN Financial. Chris, thanks for being with us. How do you read the silence of the markets? Well, thank you, Roger. I think Gillian's right to an extent. You know, we have become inured to some of this

world volatility, and therefore the market volatility has calmed down, in part because the Jenga blocks have not fallen. But I think part of this, too, is we saw –

Some real convulsions in the market back in the first half of May. Traders took off a ton of leverage. They're not as aggressively positioned anymore. And that in itself, it lets people relax. They can sleep at night and they're not

worried about losing everything in a downturn. I think the final point, and it's an important one, is that corporate profits continue to hold up very well. And of course, if you're buying stocks, that's ultimately what you care about. And we have record corporate profits in the US right now. So the bottom line is pretty good. Thanks for that, Chris. Stay with us. We'll come back to you in just a moment.

But let's talk now about global sourcing. The COVID-19 pandemic showed the world how vulnerable to disruption its long supply chains really were. And there were plenty of promises afterwards to simplify and risk-proof the ways in which we get our stuff.

Well, now there is a global sourcing risk index produced by Proxima and Oxford Economics to show how much we still need to do on this. Simon Geale, who's executive vice president of Proxima, took me through some of the main findings.

about 75% of the money that a business makes is spent with suppliers. And a lot of that goes into this global supply chain system that we hear so much about that so many businesses are now looking at rewiring. So what we wanted to do, if we're talking about rewiring because we're worried about some risks that we're facing into, is profile some of the risks that we might be trading in doing that. So

So the risks that you're looking at, are they country risks? Are they root risks? Are they...

Are they commodity risks? What are we talking about? We've selected eight risk indicators, and they're things like geopolitical conflict, human rights, governance and rule of law, input costs on labour and raw materials. So we're trying to get to some of the things which might disrupt or increase cost or cause reputational damages for businesses. So in terms of risks, what you're saying is that certain things, but also certain things that cause risks, but also I gather you list...

countries or areas perhaps that are more risky to source from? Exactly. So what we wanted to do, if you look at the global economy, we've picked 30 countries which are responsible for about 75% of global trade. So that's the world's top 20 largest economies and 10 emerging economies which we've picked, which we believe are of significance over the next decade or so.

So essentially what we're saying is if we're going to be trading amongst each other, because that's where the majority of global trade is done. So, for example, if you're thinking about a China plus one strategy and moving to Mexico or Turkey, what are the risks that we might be facing? OK, well, I'm asking you now, where should I where's the riskiest place I could have as a source for for my supply chain?

top of the index perhaps somewhat surprisingly was mexico closely followed by turkey india and the philippines and then russia so that's our top five mexico uh was top now i thought that was quite surprising because you know mexico is is a bit of a paradox right it's a us top trading partner it's a near-shoring magnet it's very very cost competitive so all big pluses

But why does it rank so highly? Well, it ranks quite high on things like governance and rule of law, supply concentration, so perhaps an over concentration of supply in some of the industrial zones and border states. It ranks quite high on climate risk.

It's very sensitive to US policy and it's had a, well, let's say an improving record on human rights. And when you look across the eight, you know, that sort of aggregation of those scores is what puts it into top place. But I think what's really important is we're not saying don't go to Mexico.

What we are saying is, of course, there are quality skills and economic gains within Mexico. But when setting up new supply sources, make sure you understand the risks that you're facing into and take the appropriate mitigating strategies. Another eye catcher, I just had a look at the report, is the US. It's 13th on the list. And to put it in context, it's a higher risk profile than Brazil, Malaysia and South Africa.

Yeah, that was a real surprise to me too. Actually, when you look into the US, it actually scores relatively well on a number of our risks, but it does score quite highly on things like labour input costs. So post-COVID in the US, there's been some quite marked labour shortages, particularly in things like manufacturing and logistics. And the targeted re-industrialisation and onshoring is driving up labour costs

On things like geopolitical risk, well, it's, you know, I mean, some of the listeners might chuckle, but it's been a semi-stable state, but a central player in global affairs and conflict. And although it's not reflected in the report, the time of writing, if you look at the Global Peace Index, for instance, the US has shot down that over the last two or three weeks.

in reaction to its role in the Middle East, for instance. Now, I might sound smug, but Europe, I mean, Britain is at least geographically next to Europe, comes as the safest region for sourcing. But there is a sort of balance of that, isn't there, to do with cost?

That absolutely is. Most of the large European economies sit in the bottom quartile. Why is that? Well, generally speaking, we have a relatively strong governance regime, we have relatively low exposure to climate and things like tariffs. But yeah, that does come at a cost, which is exactly the reason why we've created this global economy when so many of our sourcing decisions have been based on cost. Now,

you might say to me that wouldn't it be nice if we had more goods to export in this scenario? And I'd probably agree with you. Simon Jewell there of Proxima taking me through the details of that new survey. Still with us, Chris Lowe. Chris, just briefly, I mean, it is interesting that supply chains are still a major problem for a lot of the world's trade. They are. And the tariffs are a big part of that. We saw companies trying to source goods from

Before the tariffs went into place, imports in the United States in the first quarter were astronomically high. And that was the latest. And then, of course, on the other side of that, after April 2nd, imports collapsing. So...

shipping prices have gone up and then back down again. It's also been highly disruptive to manufacturers. Yeah. Let's talk briefly then, Chris, about the Fed, because Christopher Waller, interesting Fed governor, seen as a possible candidate to replace Jay Powell as chair, he's actually sort of said, well, perhaps we should be cutting rates. Yeah. And maybe as soon as the next meeting in July, which is really amazing. I've been in

the room with both Jay Powell and Chris Waller. And I can tell you, they've worked together for years. They get along well. I don't think this is rebellion within the Fed. I think this is instead one member of the Board of Governors, maybe just rephrasing it a bit, that we're 125 to 150 basis points above where we need to be, and we can ease up

bit and then decide what to do. Chris, thanks for your thoughts on that, Chris Lowe there. You're with World Business Report from the BBC World Service.

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Now, debt has been a millstone around the necks of the less developed countries for many decades. Back in 1996, the HIPC initiative was brought in by the International Monetary Fund and the World Bank to provide debt relief and low-interest loans to cancel or reduce external debt repayments. But a new poor report by some of the world's top economists, backed by the Vatican...

suggests that that has not solved the problem. They're calling for urgent changes to the global financial system so countries struggling with high debt can invest in things like health care and education. I've been speaking about this to Dauda Sembene, who's the founder and chief executive of Africatalyst, a firm based in Senegal and one of the authors of the report.

The challenge of actually being over-indebted is basically you don't have enough resources to allocate to your priority spending. Because you're spending too much on interest payment, that's actually sort of crowd out all the resources that are needed for all the priority, whether it is healthcare, whether it is education, whether it's infrastructure, or simply the delivery of basic services. Now, Dauda, I mean, I remember 20 years ago, a lot of people talking about

a move to change the situation for highly indebted poorer countries, the HIPC initiative, it was called, and pushed, in fact, by the later British Prime Minister, Gordon Brown, amongst many others. And did nothing come of any of that? Or are we just coming back to the same situation again? Well, that's the question, Roger. What has happened 20 years ago was the

highly indebted poor country initiative that was, of course, successful in reducing significantly the debt burden facing many developing countries at that time was to find a way to avoid the recurrence of debt challenges, which means that they did not take the necessary action to reform the underlining problem that was actually making those countries to be over-indebted. And it includes reforming the global financial architecture that

compound and aggravate risk to debt sustainability facing many developing countries, but also applying the principle of responsible borrowing and lending that is needed for sustainable lending and borrowing actually in all countries, whether it's a developed or a developing country. So what we have been proposing as part of this report is very much to encourage and incentivize the international community

to come up with a solution that would be more sort of permanent and that would allow us to avoid the recurrence of this lending-forgive cycle. So, Dauda, what would this involve? Writing off some of the existing debt, but also somehow stopping countries getting into the debt crisis again afterwards?

The first thing that is important is to find ways to lower the cost of borrowing. Because I think if countries are forced to borrow at high rates or interest rate, chances are they won't be able to maintain debt sustainability. That's one. It also means that if a country is in debt distress, you need to find a debt resolution framework.

As of now, there is no such a multilateral debt resolution framework that can allow countries that need to restructure their debt to be able to benefit from it. And in simple terms, restructuring a debt means actually lowering the debt payment so that you can be able to pay your creditors while, of course, freeing resources for other priorities.

A lot of people listening to this might say, well, hang on, the problem isn't so much those who are lending the money, it's those who are borrowing it and that there are countries that will still borrow in an irresponsible way, whether they're from developed or developing countries.

And that is the central problem. If countries borrow beyond their means, this is how they get into this problem. Well, this is an issue that we raise in the report. And what we do agree among all the commissioners, and we were more than 30 of us, is that there is a shared responsibility among all actors that are involved.

Of course, there is a responsibility from the borrowers. What has happened is in some cases there has been maybe instances of irresponsible borrowing, but that's not always actually have not always been the case. There have been cases where developing countries, and that's actually happened quite a lot, have been forced to borrow money to be able to respond to shocks when COVID hit, for instance, when food and energy prices increased because of the war in Ukraine.

when there is a climate shock, that pushes them to get more resources, to borrow more, to be able to respond to that. And you cannot blame them for that because they need to respond to that need. But on the creditor side also, we have seen a lot of instances of irresponsible lending. Some creditors that are more sort of attracted by the perspective of making profit and that do not necessarily take into account

the need to help those countries keep their sustainability. And of course, finally, and last but not least, the international financial institutions, some of them have been also facilitating that type of behavior. So I think the report has been quite clear that we need to recognize this is a shared responsibility and find solutions that allow each of those countries

actors to play their role in making sure that this doesn't happen. We solve the issue, the crisis right now, and hopefully, most importantly, make sure that it doesn't happen down the road. Daouda Sembene there of Africatalyst. Now, when you're going to a big city, you might think of visiting its museums or trying its iconic foods and now maybe checking out its water sports. There's an emerging trend among cities built on rivers to treat their waterways

as economic assets around recreation, making them places where people can kayak, paddleboard, swim, some places even surf. Now this is an effort to both attract and keep residents and to bring in tourist dollars. But for cities with histories of polluted waterways, and that's a lot of them, it can require some convincing to make people jump in. Marketplace's Stephanie Hughes has more.

It's a little before 6 a.m. at the Baltimore waterfront, where about half a dozen paddleboarders are getting ready to launch. All right, Bridget, you're first. I don't really know.

Sorry, watch the goose poop. I haven't washed that off this morning. Jessie Benson owns Be More Sub, and this location on the harbor is a new one for her paddleboarding business. And we'll just paddle that way towards the sunrise, and then we're just going to do yoga right in this area. It feels like business is meeting nature here. Along with the bird chirps and goose poop, you can hear train whistles and see cargo ships.

It may seem a little unusual to paddle for fun in Baltimore's harbor, which is known more for shipping and manufacturing. But Courtney Marshall, who's training to be an instructor at BMORSEP, isn't two-phased. I mean, I feel like I'm not going to fall in, so...

I'm like a little bit less worried about it. The class costs $40, and there are only a handful of people signed up today. Benson says it's been slow going, partly because people are worried about getting wet. They're still nervous. They're nervous to try paddleboarding on the Inner Harbor. Like there's still that perception of like, ew, I don't want to fall in the harbor. It's still relatively early days for Baltimore's water sports scene, says Adam Lindquist, vice president of the Waterfront Partnership.

It's one of the groups behind an initiative to clean up the harbor that started 15 years ago.

And there has been a marked improvement in Baltimore's water quality since then. We say the harbor is conditionally swimmable. Last year, Baltimore held its first organized public swim in the harbor in over 40 years. Another one is being held later this summer. Tickets are already sold out, and Lindquist wants this to be a regular thing. The end game is that we want a public swimming spot in the Baltimore Harbor so that people can come down and swim on their own whenever they feel like it.

Lindquist says for the time being, he would avoid swimming in the harbor outside of organized events because there are some conditions that make a dunk unsafe. For example, when it rains, that can cause the city's sewer system to overflow. That carries bacteria into the harbor. That can make people sick.

It takes about two days for that bacteria to die off. And Lindquist says when you do jump in, you probably shouldn't touch the bottom. We have a very industrial past in Baltimore City, like many cities. And basically, you don't want to stir up the sediment at the bottom of the harbor.

There are still challenges with pollution, including a recent diesel spill in the harbor. It was in a contained area, and Lindquist says it won't affect the upcoming harbor swim. But it doesn't help build the image of Baltimore as a swimming mecca.

And for decades, lots of cities were more interested in protecting themselves from their rivers as opposed to jumping in them. We walled ourselves off from rivers and waterfronts out of fear. Brian Trusty is with Proz Consulting. His firm advises places, including Baltimore, on parks and recreation systems.

He says over the last 20 years, that attitude has changed. And now he's getting calls from places around the country that want to turn their waterways into economic engines. Communities are seeing each other. They're seeing examples. They're like, oh, I want that.

One place trustees worked with is Des Moines, Iowa. Iowa does not have the ocean. We do not have mountains, right? But we do have rivers. Stephanie Oppel leads the nonprofit Iowa Confluence Water Trails. In 2022, it found that recreation on the water in Des Moines and the surrounding areas brought in more than $11 million in consumer spending. Over the past year,

Over half of that was from tourists. It's expecting to about double that yearly spending by making some of its waterways not just boatable, but also surfable. We are putting in what's called a wave shaper. It is this big mechanical flipper that can create a surf wave. So late next summer, people will be surfing on the Des Moines River.

This is not cheap. The WaveShaper costs a million dollars. And Oppel says one challenge is these projects take a lot of time to both fund and build. You have to make sure people understand they won't be here tomorrow, but in a couple of tomorrows.

In Baltimore, I'm Stephanie Hughes for Marketplace. There we are. What you can do with water in different cities in order to encourage a bit of development along the tourist line, sometimes in rather surprising ways and ways that can actually bring in a bit of money into cities that probably need a bit of investment. That's it from World Business Report from me and the rest of the team. Bye-bye and thanks for listening.