In This Article:
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World stocks up 6% after rollercoaster few months
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Bond markets see huge swings between hope and fear
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Banking turmoil evokes memory of crises past
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Dollar slips whereas bitcoin roars back to form
By Marc Jones
LONDON, March 31 (Reuters) - From a red-hot January as China cast off COVID curbs to February's flop when interest rates surged and now a manic March of banking blow-ups - financial markets have had an action-packed start to the year even by recent standards.
Totting up the first quarter scores shows world stocks with a healthy 6% gain, government bonds up 3%-5%, gold 8% higher, energy prices sliding and the dollar barely budged.
Dig deeper though and the volatility soon emerges.
Global shares zoomed up 10% in January only to lose it all by the time Silicon Valley Bank, a mid-sized U.S. lender few had even heard of, collapsed and then the 167-year-old Swiss behemoth Credit Suisse required rescuing.
Equities are bouncing though now and U.S. and European government bond yields - the main drivers of global borrowing costs - are set for their biggest monthly drop since the global crash of 2008.
"Within three months you have had three completely different stories," BofA analyst, David Hauner, said of the year so far.
"January was an extremely strong start with China's reopening, but February we were back to pricing 6% Fed interest rates and the next thing has been the problems in the banking system."
A key reason why asset prices have swung around so much is that market makers are unsure how big central banks will react now. Push on with rate hikes and tempt further banking sector troubles? Or press pause and risk more inflation?
Two-year Treasury yields, which are highly sensitive to U.S. Federal Reserve moves, jumped from 4% to 5% in February, only to dive back to 3.5% when the SVB turmoil redrew the entire U.S. interest rate map.
That hoisted U.S. bond volatility to its highest point since the 2008 meltdown. Europe too saw 2-year German yields arc from 2.5% to almost 3.5% and back, while changes at Japan's central bank have also been moving the dial.
'Big Tech' stocks crave low borrowing costs so they have roared up by a third. The Nasdaq is up 18%, China tech 22%, emerging market countries have sold record amounts of debt and commodity markets see recessions coming.
"All the action has been in the bond markets," said SEB Investment Management's global head of asset allocation Hans Peterson, explaining the shifts had been hard to navigate. "The equity market has done impressively well considering."