Dollar, bonds…Why wild swings in stocks are next

The sharp moves in currencies and turmoil in government debt markets over recent days are likely to be followed by heightened volatility in major stock markets, according to one strategist.

"The reason I am concerned is not that valuations are a tad high or low, but that we have seen the unrest first in the currency market, then in the bond market and this will spill over into the equity market," Axel Merk, president and chief investment officer at Merk Investments, told CNBC Friday.

The euro has climbed almost 9 percent since hitting a 12-year low of around $1.0457 in mid-March, boosted by weaker U.S. economic data, a scaling back of expectations for the timing of a U.S. interest rate rise and a generally firmer tone to euro zone economic data.

The past month, meanwhile, has seen heavy selling in bond markets that has pushed yields sharply higher. Germany's 10-year Bund yield has risen a hefty 59 basis points from a record low of 0.05 percent last month, and the 10-year U.S. Treasury yield this week hit its highest level since December.

Analysts said a few things have contributed to the rise in yields: a rise in inflation expectations, especially as oil prices rebound, and an uneasiness with record low bond yields.

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Merk said that the catalyst for a sharp sell-off in equities was likely to be a change in monetary policy from the Federal Reserve. The danger, he said, was that the stock market suffered the same fate as the bond market, where investors piled heavily into one trade only to be forced to reverse those trades quickly once sentiment changed.