Ms. Yellen took center stage this week as the Fed again trimmed its bond buying program. The Fed cut its estimate for this year’s US economic growth, after a dismal first quarter in which GDP is expected to contract by 2% (annualized that is). In the press conference following the FOMC announcement Yellen spoke ‘dovish’, emphasizing that rates could stay low, way after QE ends. The initial market reaction was firm, as bond yields came down sharply.

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However, as the week progressed, the ‘Yellen’ effect was reversed. That should not have come as a surprise. Earlier this week, US inflation came in higher than expected. Both the core and headline CPI number are now at or above the 2%-threshold. Together with the recovery in employment and some, although minor, indications that wages may be about to increase, could push yields higher going forward.

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More on central banks. There was a very cool graph circulating on Twitter this week, showing the immense amount of QE that has been applied globally. The central bank balance sheets of the US, the UK, the Eurozone, and Japan have expanded by a mind-blowing $ 4.7 trillion since 2007. Wow!

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What has this balance sheet expansion brought us? Apart from soaring equity markets, volatility has declined to multi-year lows. This week the VIX-index tried to break 10, and although it didn’t succeed, the chart below shows we are currently experiencing one of the most tranquil periods, ever.

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Volatility is not just extremely low in equity markets. Bond market risk is also at extreme levels and extraordinary things can happen. High yield bond volatility is now below that of credits, despite their lower credit ratings. Duration is part of the explanation, but it sure looks as if high yield bond investors want to forget about possible defaults for now. To read more about the low volatility saga, click here.

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Now, unfortunately, there was some negative news as well. In Germany the leading ZEW-index declined for the sixth month in a row. Also the ZEW-index showed that, while investors have become more optimistic about the current situation, they are less enthusiastic about the future.

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China is experiencing its own difficulties. The slowing of the economy was reaffirmed by this week’s numbers. In May foreign direct investment declined by 6.7% compared to the same period a year ago.

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Also, house price data showed that the Chinese property sector is weakening. For years the majority, if not all, of the 70 cities that are included in the house price data revealed rising home values. But in recent months this has changed dramatically. Last month, only in 19 of the 70 cities did prices of existing homes rise.

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Thank you for reading. You can now go back to the only thing that matters these days, the World Cup!