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The possibility that this round of global financial market turmoil will continue to ferment or even lead to a new round of crisis is low, but the increased volatility of global financial markets is still a high probability event

Text｜Zhang Ming

Since July 2024, the global financial market has ushered in a new wave of turbulence.

The main manifestations are: first, the global stock market represented by the US and Japanese stocks plummeted, and the VIX index, which reflects the volatility of the stock market, rose sharply; second, the global risk-free long-term interest rate fell, for example, the 10-year US Treasury bond yield fell from about 4.20% to around 3.75%; third, the US dollar index fell, among which the decline in the US dollar against the Japanese yen was the most significant. For example, from July 10 to August 5, the US dollar against the Japanese yen fell from 161.73 to 143.95, a depreciation of 11%. In addition, the US dollar against the RMB CNH exchange rate also fell significantly; fourth, the global gold and crude oil prices fell significantly; fifth, all of the above indicators showed a deep V-shaped trend of first a sharp decline and then a significant rebound, which usually means that short-term financial indicators have overshot beyond the degree that can be explained by fundamentals.

In my opinion, there are four main explanations for the recent turmoil in global financial markets.