After starting the year on a firm footing, volatility in global equity markets picked up sharply in the final week of January. The move lower in equity markets was sparked by extraordinary retail investor buying, of stocks unfancied by hedge funds and institutional investors who had previously sold (shorted) the same stocks as part of their own strategies. Co-ordinating their activity on Reddit forums, amateur investors targeted names such as Game Stop, the US high street computer games store, surging share prices several hundred percent higher and inflicting heavy losses on professional investors who scrambled to buy back the stock they had sold. These unusual moves led to a wider deleveraging in markets, with low quality stocks rallying and higher quality favoured stocks selling off.
By the start of February financial market volatility was receding again and risk assets resumed a robust climb higher. At the same time 10-year US Treasury yields have tracked c. 0.20% higher hitting a post-COVID-19 crisis high of 1.27% (at the time of writing). However, the accompanying US Dollar strength has been limited with the trade weighted index only rising 0.25% and trending lower versus Sterling being unchanged (-1.2% MTD).
