First Quarter Overview – Massive Swings and Volatility in Stock Markets

First quarter of the year ended with markets experiencing massive swings and volatility. Higher bond yields, revised inflation expectations and a potential trade war brought fears to the markets, making investors very sensitive to any economic data releases or changes in the markets.
Markets were comfortable to the “artificial” low interest rates for a decade.
Higher bond yields rattled the markets as investors realized that the “era of low interest rates which was created artificially by quantitative easing” is coming to an end. After the financial crisis in 2008, major central banks across the world cut their base lending rates. The below graph depicts the dramatic change in interest rates after the crisis.

With a stronger global economy, central banks have started unwinding the post-GFC monetary stimulus and policymakers are ready to change their stance on interest rates which are putting pressure on the bond markets
Traders are in a fragile state of mind as higher interest rates mean that safer bonds are offering greater returns, making risky stocks less attractive.
After February’s tumble, stock markets’ volatility soared on the aggressive tariffs stance taken by President Trump.  A potential trade war between China and U.S, the world’s two largest economies, are threatening the spectrum of global trade.
Even though President Trump is confident that “trade wars are good and easy to win”, it seems that he is forgetting that history is telling a different story.
Markets are swinging between risk off and risk on mode following any tit-for-tat response from the US and China. At the Boao Forum, President Xi’s speech managed to ease some concerns, but investors stay worried as the unpredictability and uncertainty around global trade could put considerable pressure on the markets.