A degree of uncertainty has recently found its way into previously seemingly bulletproof financial markets as price action reflected concerns relating to the current political hotspots (Syria and North Korea). There are four gauges of global market risk sentiment that are closely watched and they all moved higher last week which is a pretty clear signal of risk aversion.
Both the VIX Index, a measure of volatility in US equities and the spot gold price rose to its highest level since the US election, while another “safe haven” asset, the Japanese yen, strengthened against the rest of the G10 currencies. Finally, for good measure, US Treasury government bond yields have fallen to their lowest level of the year.
There is clearly some nervousness out there, with softening USA/Russia relationships and geopolitical tensions around North Korea ratcheting higher and adding to an already heightened geopolitical environment. Any forecasts for the course of monetary policy are therefore clouded by flight to quality trading at the moment.