The View | Don’t blame flimsy trade war truce – exposed by Huawei arrest – or the Fed for market turbulence. Instead, look to China’s economic woes

Another week, another tumultuous spell of trading in financial markets. Last Monday, the benchmark S&P 500 index joined a global rally in stocks in response to an apparent easing of tensions in the US-China trade war, only to plunge 3.2 per cent the following day partly due to mounting concerns about the health of the world economy. Last Thursday, the Stoxx Europe 600 index, Europe’s leading equity gauge, suffered its worst one-day performance since Britain voted to leave the European Union, in June 2016, yet quickly rebounded on Friday, enjoying its best day in five weeks.

The surge in stock volatility, which began in February, has intensified since early October and has spread to other major asset classes, which are on track this year to suffer their broadest losses since the 1970s, according to data from JPMorgan. Adding to the uncertainty is a raging debate among investors and analysts over the causes of the wild gyrations in markets.

One of the most frequently cited reasons for the turmoil is the fear that the Federal Reserve is too hawkish. Treasury yields have fallen sharply since early November, so much so that part of the yield curve inverted last week for the first time in a decade, usually a sign of a coming recession. Some investors believe the Fed will be forced to keep interest rates on hold next year. Even a near-certain increase later this month is now in doubt. Yet the fact that a more dovish tone from the Fed itself in recent weeks failed to lift sentiment suggests America’s central bank is not to blame.

The other oft-cited reason for the turbulence is mounting scepticism about the trade ceasefire. The S&P 500 fell nearly 3 per cent last Thursday morning following reports that the chief financial officer of Huawei had been arrested, showing the extent to which markets question the durability of the truce and remain sensitive to tensions between the US and China.