It’s been a good month for the greenback but an awful one for US equity markets. Wall Street’s “fear gauge”, the VIX index highlights the latter. It was trading around 20, its long-term average, at the start of April. The index spiked higher towards the end of the month and closed at 33.40 last week. While war fears are simmering, concerns around higher rates and rampant inflation continue to weigh on investors.

King dollar is enjoying this environment. The sour risk mood is playing into its hands, while a front-loading Fed keen to hike rates means interest rate differentials are widening further, particularly against low-yielding currencies. Commodity currencies too have been hurt this month, as China’s slowdown from new lockdowns slows activity.

April has tended to be one of the better months for stock markets. History’s big selloffs have mostly come in the second half of the year. Indeed, clichés around “sell in May and go away” will probably grab the headlines. But it is unusual to get two very bad months in succession. Withdrawing trillions of dollars of liquidity is also uncommon.

Major events of the month, in numbers

* -13.3% Nasdaq Composite: The tech-laden stock index suffered its biggest one-month sell-off since the 2008 GFC. Disappointing earnings updates by a few megacap tech giants added to concerns about rising interest rates and slowing economic growth.  The broader S&P500 dropped nearly 9% but the high-profile let downs by Apple, Amazon, Alphabet and Netflix highlighted the dominance of the tech sector on major US indices. Together with Microsoft, Tesla, and Meta, they still make up almost a quarter of the S&P500.

* 20-year high USD: The US dollar surged to its highest level in two decades, leaving other major currencies for dust. The greenback has gained more than eight per cent this year as the Fed gets serious about reasserting its inflation-fighting credibility. Markets are pricing in 50bp rate hikes at each of its next three meetings. This is despite data showing the US economy unexpectedly contracted in the first quarter. Sentiment figures are also edging lower pointing to a cyclical slowdown in the second half of the year.

* -36% Netflix: The great rotation out of tech growth stocks is perhaps exemplified by the once-mighty streaming darling. Its shares plunged after its latest update, the second consecutive quarter when results didn’t boost hopes for further revenue growth.  The FT wrote, “the easy-money years of streaming are ending, just as Hollywood’s golden year did.”  It is too a brutal reality that there is a lot of hope expressed in valuations. The slightest challenge to that hope ends in a crash.

* 130 USD/JPY: We noted big round numbers being hit in the currency majors during April, for example EUR/USD 1.05, GBP/USD 1.25. But probably the biggest was USD/JPY breaching another landmark. The global divergence in yields was exacerbated by the Bank of Japan vowing to keep 10-year bond yields around zero. With the Fed on its tightening mission, the yen dropped to its lowest level since the early 1970s in real terms. Going forward, there may be louder intervention noises by Japanese officials, but as long as the BoJ maintains its policy stance, success will be fleeting.

* 0% US 10-year TIPs: The majority of recent market moves come back to this. Yields on Treasury Inflation-Protected Securities (TIPs) are also known as “real yields” as they subtract projected inflation from nominal yield on US government bonds. These have been in negative territory since March 2020 when the Fed slashed rates to record lows. But they moved into positive territory during the month. Real 10-year yields are the risk-free alternative to owning stocks. As they rise, it makes stocks less attractive.