Last week's tumultuous market movements have given way to a calmer scene, with the S&P 500 closing higher and US 10-year yields dropping below 2.9% by the February 16 close, but that's doesn't mean that volatility won't flare up again. "Volatility has fallen but we're not out of the woods yet and any 'good' economic data could spark further nervousness," says Althea Spinozzi of Saxo Bank's bond trading desk.
John J Hardy, Saxo's head of FX strategy, notes that the US dollar's gains against its peers have come "with no obvious catalyst besides the resumption of risk appetite" so tracking the market's willingness to accept risk will be key to the coming week's developments. One feature that should be closely monitored is China's response to US president Trump's suggestion of tariffs on imports of steel and aluminium, as this protectionist move could trigger harmful retaliatory action.
In equities, the S&P 500 may have recovered about half of its recent decline but the main question now is whether the rebound can extend, says Peter Garnry, Saxo's head of equity strategy. "The VIX index remains above average and could easily become more volatile again," he says.
Finally, risks of another kind are at play in the crude oil market, following a flare-up in tensions between Israel and Iran at the weekend, which, says Ole Hansen, Saxo's head of commodity strategy, is supporting the price of crude although soaring shale production is still likely to keep the market capped.
Brent crude oil has retraced 38.2% of its recent rally:
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.