Markets have experienced heavy bouts of volatility over the past week, so what's next?
Are we entering a new regime for investors?
The good performance of markets since 2009 have caused may investors to question if the end of the bull is imminent. Central banking policies look to change in the short term, pulling the rug from underneath the markets. Two camps have emerged after the recent falls in the market. Those who believe the falls embody a buying opportunity and those who believe they presage a long period of negative returns.
A central aspect of the new investment regime is the question of the extent of bond yield rises necessary in order to affect equity growth.
How important is the US inflation data this week?
The US consumer price index for January will arrive on Wednesday, with most economists expecting a fall to 1.7% compared with December's figure of 1.8%. Any increase could affect the markets adversely.
Expectations for inflation however, are on the rise as the US Federal Reserves 5yr/5yr inflation expectations measure has hit a level not seen since the end of 2014.
So what might exacerbate the market turmoil?
The extended period of inexpensive borrowing has caused investors to load up on cheap credit, making them vulnerable to the expected increase in borrowing costs. US junk bonds are at 6.2%, which is up from a low of 5.5% last month according to the Bloomberg Barclays index, which is the largest value since late 2016.
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The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
Past performance is not a reliable indicator of future performance.
What’s next for markets after tumultuous week?