Financial market volatility will linger and may worsen

Significance

Equities, bonds, cash and gold all suffered outflows in the week ending May 11, according to data provider EPFR Global. More worryingly, the sell-off in equities has spread to the corporate bond market as investors reassess the ability of junk-rated companies to withstand the rapidly deteriorating economic pressures.

Impacts

• The dollar index is up nearly 10% in 2022, contributing to tighter financial conditions and stressing dollar-indebted emerging markets.
• Emerging market bond fund outflows are set to continue; they have lost more than USD25bn in 2022 after inflows rose above USD52bn in 2021.
• Oil has been volatile at USD100-135 a barrel since mid-February; it should trend to or just below USD100 absent any further major shocks.