US tariff policy accelerates deeper structural changes

WHILE there has understandably been a lot of focus on the unusual financial market volatility of recent months, I have been intrigued by something else – the instability in the consensus economic narrative.

The high confidence in American economic exceptionalism reached its consensus peak at the January meeting of the World Economic Forum at Davos. Sentiment then violently swung into deep pessimism about a recession and the fragmentation of the global order. The mood is now in a muddled middle terrain.

Swings reflected in markets

Markets have reflected those swings, both in the magnitude of moves and breaks with long-standing historical correlations. In just the last three months, the S&P index fell almost 20 per cent from its peak in February only to rebound nearly 14 per cent during the past four weeks. The Vix, popularly known as “fear index” of traders, has been on a wild roller-coaster ride while the yield on the 10-year US government bond, often referred to as the global benchmark, has fluctuated within a range of 0.80 percentage point since February.