FOR a while, it seemed that two market trends were inexorable. The euro was falling towards parity with the dollar and yields on German ten-year government bonds were on their way to zero. Both reversed in April (see chart).

The shift was so dramatic that it seems likely investors were caught napping. Dhaval Joshi of BCA, a research group, says that the European Central Bank’s bond-buying created a degree of “groupthink” among investors, with everyone convinced that yields were headed lower.

When the trend changed, there was a stampede for the exits.

In the currency markets, investors were bullish on the dollar at the start of the year in the belief that the American economy was strengthening and that the Federal Reserve would push up interest rates, perhaps as soon as June. But the economic data have been disappointing: revisions may show that GDP declined in the first quarter and the Atlanta Fed’s GDPNow model suggests the second quarter is only on target for annualised growth of 0.7%. Meanwhile, economic data in the euro zone were generally better than expected—hence a pattern of selling the dollar and buying euros.

Now the markets may have reversed themselves again. On May 19th the ECB indicated that it would step up its bond purchases; both the euro and German bond yields fell sharply. This volatility is hardly surprising. Investors are hugely dependent on the decisions of central banks; in turn, the central bankers react to the vicissitudes of the market. They do not want to see their currency, or their country’s bond yields, rise too far because of adverse effects on economic activity.

In addition, both investors and central banks are trying to interpret some weak recent economic data.

JPMorgan Chase, a big American bank, estimates that global growth was just an annualised 1.2% in the first quarter. Global trade, which fuelled economic expansion in the first few years of the century, has stubbornly failed to pick up. Volumes grew by just 2.8% in 2014 and the World Trade Organisation expects only a modest acceleration to 3.3% this year, a forecast that has already been revised down twice. An indicator from UniCredit, an Italian bank, is more pessimistic still: it suggests global trade is stagnating.

Analysts at JPMorgan Chase also estimate that global employment grew at an annualised rate of 1.5% in the first quarter, faster than GDP. That implies a worrying decline in global productivity.

Profits have also been squeezed. The earnings of companies in the MSCI World Index fell by 3.7% in the year to April 30th, according to Andrew Lapthorne of Société Générale, a French bank. A stronger dollar (which reduces the value of profits in other currencies) and the weak oil price (which hits the earnings of energy companies) played a big part in the fall.

These developments imply a couple of bearish possibilities. The first is that the world economy has simply run out of momentum and may slip into recession. The alternative is that the world economy is close to capacity and that tightness in the labour markets will start to show up in faster wage increases, and thus inflation, prompting central banks to withdraw their monetary stimulus.

But such fears are not the consensus view. Most investors think the first quarter was a soft patch, linked to poor weather in America. A poll by Bank of America found that 70% of fund managers expect the global economy to strengthen over the next 12 months; only 11% think it will weaken. The poll found that a net 47% of managers were overweight equities—that is, they had a higher allocation than normal to the stockmarket.

Fund managers may also feel they have little choice but to buy shares. Citigroup reckons that the weighted average of global short-term interest rates is just 0.7%, the lowest in 40 years (the weighting is on the basis of stockmarket capitalisation, reflecting investors’ choice between holding cash and buying shares). With bond yields also very low, even after recent rises, investors have to take risks if they are going to make decent returns—either by buying equities or by speculating with borrowed money.

In addition, central banks are still gobbling up government bonds and companies are buying back shares with their spare cash. Allowing for these factors, net global security issuance is zero, according to Citigroup. So the natural tendency is for the money flowing into mutual funds and pension funds to push equity and bond prices higher. And the higher prices get, the more vulnerable markets are to the bouts of volatility seen in recent weeks.