As they enter the second quarter, policymakers and financial market participants would be well advised to think of the first three months of 2018 not as a temporary and reversible aberration but, instead, as an ongoing transition to more normal conditions. Larger two-way price movements in asset prices were long in coming but inevitable, especially after the unusual calm of 2017.
They occurred in the context of a relatively strong global economy, continued progress in the orderly normalisation of US monetary policy and reawakened sensitivities to political risk. Discounting certain risks, they could end up part of a healthy resetting of markets that places them on a firmer medium-term footing.
Of the different ways to assess the start of the year in markets, I have found a helpful one is to think in terms of developments that were expected to materialise last year but only did so in the first quarter this year. In doing so, they repriced volatility and the risk-free rate — major influencers of many markets.