In addition to the uncertainty caused by the war, inflation and monetary policy are currently determining what is happening on the financial markets.
James Bullard, regional president of the Federal Reserve (Fed) in St. Louis, caused a stir on Monday, when he again called for a clearer tightening of monetary policy.
In his view, the key interest rate should rise to 3.5 percent from the current 0.5 percent by the end of the year, in several steps of half a percentage point, if necessary also three quarters of a percentage point.
Markus Fruehauf
Editor in Business.
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Martin Hock
Editor in Business.
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Patrick Welter
Correspondent for business and politics in Japan based in Tokyo.
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The sell-off in the bond market then continued and yields rose to multi-year highs.
The yield on the ten-year US government bond reached 2.9 percent, its highest level in three and a half years.
The ten-year federal bond followed and recently yielded 0.933 percent, the highest it has been for almost seven years.
Ulrich Leuchtmann, Commerzbank's foreign exchange strategist, pointed out that Bullard is known for spreading unconventional ideas.
This was often the first member within the Fed to point out changes in monetary policy.
For similar reasons, equity markets took it less hard.
Such an announcement by Bullard is not unusual, as he is one of the "hawks" in the US central bank, i.e. one of the advocates of a strict interest rate policy aimed at securing monetary stability.
Therefore, this dampened the share price development on Wall Street only a little.
It just outweighed Bank of America's good numbers, observers said.
The S&P 500 index closed at practically the same level as Friday.
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In the German stock market, however, the minus was somewhat larger on Tuesday.
This can be attributed to a more pessimistic mood in Europe, combined with the concern that the economic stimulus from the USA could become even weaker with an even tighter monetary policy.
Given that the economy has been more severely affected by the war in Ukraine, this is increasing recession worries in Europe.
News from the export market China didn't make anything better.
While first-quarter growth was higher-than-expected at 4.8 percent, retail sales in March fell twice as much as forecast and unemployment rose to the highest level in almost two years.
Despite promises from the leadership to catch up on growth and support companies affected by the zero-Covid strategy, banks lowered their economic forecasts to well below 5 percent for the current year.
Here, too, the markets are looking at the central bank.
This reduced the minimum reserve requirements, but not the interest rates.
The dollar is benefiting from the current interest rate situation.
The dollar index, which shows the external value of the American currency, has risen from less than 90 to more than 100 points since May 2021.
The dollar is currently quite strong.
If it climbs above 103.3 points, it hits a 19-year high.
That doesn't seem impossible.
The strength of the dollar is troubling some countries.
The Japanese government, for example, is becoming more nervous in view of the accelerated devaluation of the yen, but is reluctant to intervene directly in the currency markets.
Finance Minister Shunichi Suzuki said on Tuesday that sharp movements in the exchange rate were undesirable.
In the current situation of rising crude oil and commodity prices, the harmful effects of the weak yen are greater than the benefits.
The Bank of Japan sees it differently, although central bank governor Haruhiko Kuroda admitted on Monday that the latest developments could cause problems for companies.
Analysts attribute the devaluation of the yen mainly to the fact that Japan's central bank, in contrast to western central banks, is sticking to the policy of cheap money.
This widens the gap in long-term interest rates between the United States and Japan.
Suzuki's verbal intervention failed to stop the devaluation.
On Tuesday, the Japanese currency traded at more than 128 yen per dollar, the highest in 20 years.
The European Central Bank (ECB), on the other hand, no longer rules out an interest rate hike in the fourth quarter after the end of the bond purchases, but appears to be hesitating with the tightening.
In this respect, the markets are also betting on a rising interest rate differential with a view to Europe and thus on the dollar.
In addition, this is always in demand in times of great uncertainty, also because American investors invest less abroad.
Added to this are the rising raw material prices.
Corn and soy are only just below their peak prices of 2012. Since commodities are traded in dollars, this also increases demand for dollars, at least in the short term.