Remarkable global market stability is unlikely to last

Subject

Financial market volatility.

Significance

A more dovish outlook for US monetary policy and the weaker performance of the far right in the Dutch parliamentary election have contributed to subdued volatility and risk aversion in financial markets. The Euro Stoxx 50 Volatility Index, Europe’s so-called ‘fear gauge’, measuring anticipated price swings in European equities, is close to a historic low. However, other gauges of sentiment, such as outflows from ‘junk-bond’ funds, suggest investors are increasingly concerned that markets are too frothy.

Impacts

• Oil prices fell by 10% in March amid oversupply concerns, and further slippage would complicate OPEC talks on extending the output curbs.
• Emerging market equities have risen by 11.1% this year as dollar weakness and improving growth prospects lure investors seeking returns.
• The spread between France's ten-year government bond yield and Germany's remains close to a four-year high, highlighting Europe’s variation.