RBI Governor Raghuram Rajan said that the Global financial markets have recouped the losses suffered in the turbulence at the beginning of the year. From mid-February, a firming up of crude prices buoyed market sentiment, allaying fears of global recessionary risks. With China reducing reserve requirements, the ECB expanding accommodation and the Fed providing dovish guidance while staying on hold, equity markets rallied. In bond markets across AEs and EMEs, yields gradually eased, with country-specific variations.
The US dollar has retreated from January peak and has eased further in the aftermath of the FOMC’s March meeting. On the other hand, the euro and the yen have appreciated, reacting perversely to exceptional accommodation. Currencies across EMEs have also appreciated as portfolio flows returned cautiously to local debt and equity markets. Gold prices have jumped 16 per cent in Q1 of 2016 on safe haven demand. Commodity prices, including oil, have picked up recently, though they still remain soft. However, the uneasy calm that prevails in financial markets could be dispelled easily by a sudden return of risk-off investor sentiment on incoming data, especially pertaining to China or to US inflation.