By Marc Jones
LONDON (Reuters) – Most investors knew things could turn turbulent this year given U.S. President Donald Trump’s return to power in the world’s biggest economy and financial market, but few predicted the kind of a rodeo ride it has been so far.
Scan the surface and world stocks are almost where they started the year, while volatility gauges like the VIX are nowhere near the peaks they scaled during the pandemic or financial crash.
But look closer and the scale of what has been happening jumps out.
Gold, the ultimate safe port in a storm, has had its best quarter since 1986 due to Trump’s trade war and the dollar is flirting with its worst start to a year since the 2008 global bust.
Just as jarring, the ‘Magnificent Seven’ U.S. tech giants have been hit for six. They have been a cash cow for portfolios for years but have shed nearly $2 trillion and been left for dust by Chinese rivals and Europe’s defence firms.
Chief Investment Officer of multi-asset fund manager Candriam, Nicolas Forest, said the way that markets had changed tack had been remarkable.
“The Trump trade has completely reversed,” he said.
Whereas the major risk back in January was that Trump’s ‘America first’ policies would push inflation back up and prevent U.S. interest rate cuts, “now the most important risk is recession risk,” Forest said.
That has spun the $140 trillion global bond market 180 degrees.
Benchmark U.S. Treasuries look set to end Q1 with a respectable 2.7% return, with their yields, which are a proxy of borrowing costs, down more than 20 basis points.
At the same time, Berlin’s historic plan to release its self-imposed debt brake to allow higher defence spending – prompted by Washington scaling back its military support – has propelled German Bund yields up over 40 basis points.
It is the biggest quarterly move in yields since 2023 and the first time they have moved in the opposite direction to Treasuries since 2021.
Japan’s 10-year JGB yields, meanwhile, have surged to their highest since 2008 on expectations for further Bank of Japan rate hikes. At almost 1.6%, JGB yields are up almost 50 bps, set for their biggest quarterly jump since 2003.
DOLLAR DRAMAS
The dollar’s 4% drop has given emerging market currencies a rare chance to shine.
Trump’s re-engagement with Russian President Vladimir Putin has helped the rouble surge a whopping 35%, although it remains heavily restricted in most major economies by sanctions.
Poland’s zloty and the Czech crown that also stand to benefit if the Ukraine conflict ends are near the top of the list, too, with gains of over 5%, while even Mexico’s peso and Canada’s dollar are in positive territory despite all their tariff traumas.
