After a brief recovery, stock market volatility has returned since the start of April. Market sentiment remains dominated by the war in Ukraine, with its knock-on effects seen in soaring inflation and weakening economic data. 

However, while a resolution to the conflict in Eastern Europe looks remote, there are supportive factors for stock markets. Economic growth has remained fairly resilient, with corporates showing considerable pricing power, enabling them to pass on higher input costs. Households are still relatively robust, with savings made during the pandemic. 

Central banks remain committed to fighting inflation through higher rates. Government bond yields have spiked notably higher in recent weeks with US real yields turning positive for the first time since 2020. Markets are adjusting to an environment where real rates could be sustainably above zero, with potential opportunities emerging in fixed income. 

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This episode was recorded on 20/04/2022

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