It has been almost forty-five days since 2022 and the start of the year could not be more volatile for the financial markets. The equity index in the USA is already seven percentage points down that is the worst start to a year. The bond yields are up by a large margin as the central banks rush to correct inflation or at least try to. Oil is touching above $95/bbl which is a worry for inflation onlookers.
These are just highlights of what has happened and the reasons for it to happen are more than a few. But the level of chaos can be imagined via an example of a snack company based in Japan that was forced to increase its prices after almost two decades due to raw material inflation.
But as they say when the worries become larger the attack of it has to be larger and stronger. So, the central banks have chosen that path that will not only increase volatility in the financial world but also in the real world.
This is because such quick and brutal actions will not have a smooth effect, it will surely create some level of crisis in financial markets as the two years low volatility and high margin high profit comes to a pause. And all the mature participants are ready with a pile of cash to be deployed once all the central banks do the best thing they do and that is a wrong policy decision.
From all of this, it is clear that currently, a trial balloon phase is going on, and sooner than later the bubble will burst.