While signals from bond markets are not always reliable and can be a poor predictor of shifts in the economy, stock markets are volatile and driven by sentiment. This is why bond markets are often referred to as “the adult in the room”, at times punishing countries by driving up bond yields when public finances deteriorate or politicians act recklessly.
Since Donald Trump’s re-election as US president, stock markets have been erratic. In the month following the election on November 5, the S&P 500 index rose about 5 per cent. Since then, however, the gauge has lost 2.2 per cent. While equity markets initially took comfort from the promise of tax cuts and deregulation, concerns about the other pillars of “Maganomics” – higher trade tariffs and a crackdown on immigration – are starting to weigh on sentiment.
The message from bond markets, on the other hand, has been far less ambiguous and more alarming. Since mid-September…
