February saw a sharp reversal in risk appetite as investors shifted out of global equity and bond markets. Evidence of economic strength, including a tight labor market and rising wages in the United States, drove Treasury yields higher. The wage growth in January fed market fears about inflation and raised concerns that the Federal Reserve will quicken the pace of interest-rate hikes in 2018. Since then, calm has somewhat returned to Wall Street.
Markets are also absorbing the recent flurry of global economic and policy news. The budget deal ushered in by the U.S. Congress is expected to benefit economic growth. However, recent steps toward protectionist trade policies create downside risks to this outlook. President Trump slapped tariffs on aluminum and steel imports, weeks after announcing tariffs on washing machines and solar panels. In China, President Xi Jinping’s supporters succeeded in lifting a constitutional provision on the length of time he can serve.