Global financial markets are braced for further turbulence as attention returns to inflation data this week. A larger-than-expected rise in US core inflation in May fuelled a retreat in commodities and emerging market equities and resulted in a sharp increase in volatility across all asset classes.

A number of central banks raised interest rates last week in what appeared to be a tacit agreement to tighten liquidity conditions in response to growing inflationary pressures. This is also forcing a reassessment of risk premiums and there is little indication that this uncomfortable process is complete.