No time for nonchalance, no matter the markets’ ongoing resilience
The recent escalation in global trade protectionism, when the global growth spurt appears to have peaked, could still put markets under further strain
When a bout of turbulence swept through financial markets at the beginning of last month, wiping US$6 trillion off the value of global equities, many investment strategists and commentators, including some who write for this paper, predicted markets had “reached a tipping point” and were bound to suffer a prolonged and disorderly correction.
At the time, I argued that talk of a financial meltdown was wide of the mark and that there was little indication that the ructions in US stock markets were undermining sentiment towards other asset classes, or that the sell-off was forcing international investors to fundamentally reassess their sanguine views of the global economy and corporate earnings.
Yet the sharpness of the rebound has been striking.
Not only did markets snap back almost as quickly as they tumbled, the VIX Index, Wall Street’s so-called “fear gauge” which gave rise to the speculative bets on subdued volatility which backfired last month, is back below its long-term average level of 20 having briefly hit 50 on February 6.
While equities were under renewed strain on Wednesday following the decision by Gary Cohn, US president Donald Trump’s top economic adviser and Wall Street’s representative in the White House, to resign because of his opposition to Trump’s plan to impose tariffs on aluminium and steel imports, markets have quickly brushed off the recent spike in volatility.
The facts speak for themselves.