Financial stability fears rise as ‘everything’ rallies

Significance

There are fears of a bubble reminiscent of the 1990s dot-com mania. The froth is most apparent in US stock markets, where retail traders are wielding increasing influence. Investors' exuberant behaviour across asset classes suggests many participants are losing touch with reality.

Impacts

• If GameStop portends the start of a battle between hedge funds and retail investors, it could have a profound impact on global markets.
• The dollar index has plunged to its lowest since April 2018 and is set to stay relatively weak, helping to keep financial conditions loose.
• A market gauge of US price expectations is at its highest since 2013, with the 5-year breakeven rate surging to 2.2% from 0.1% a year ago.
• ‘Vaccine nationalism’, particularly in Europe, is further politicising the response to the pandemic and endangering the global recovery.