The London stock market stabilised today on “turnaround Tuesday” after shares all over the world were hit by one of the biggest waves of selling seen since the global finance crisis.
The FTSE-100 index of leading British company shares rose briskly at the start of trading before settling back to stand at 8,022.53, up 14.3, or 0.2 per cent, by mid-morning.
City traders were in less nervous mood after an extraordinary bounceback on the Tokyo stock market, which had seen the biggest falls on Monday.
Japan’s Nikkei index rose 3,217 points or 10 per cent to 34,675.46 last night, having previously suffered its biggest one-day collapse since the Black Monday crash of October 1987.
Japan had been particularly badly exposed to the new mood of pessimism that suddenly gripped global financial markets at the end of last week when yet another delay in interest rate cuts from the US Federal Reserve coincided with worse than expected US manufacturing and jobless data.
Some analysts blamed rapid unwinding of large positions in the so-called yen carry trade for the extreme speed of the slump in the Nikkei after the Japanese currency appreciated much faster than expected following a hike in interest rates last week.
Carry trades refer to when an investor borrows in a currency with low interest rates and reinvests the proceeds in higher-yielding assets elsewhere. Other analysts have blamed the August exodus to the beach for the volatility in markets this week as trading desks are left in the hands of more junior staff while senior executives take their summer holidays.
Russ Mould, investment director at brokers AJ Bell, said: “There will be some relief this morning as the FTSE 100 and other European indices arrested the recent market rout and eked out some solid gains after stocks rebounded overnight in Asia.
“Fears about a sharp recession in the US, engendered by weak jobs data, remain and the unwinding of the yen carry trade may continue to play out, although whether the market moves are being exacerbated because many traders are on the beach is an open question.”
Matt Britzman, senior equity analyst at fund managers Hargreaves Lansdown, said: “What a difference a day makes… Investors shouldn’t assume this relative calm means markets are back to behaving rationally again— the volatility index (vix) is still at elevated levels, suggesting more turbulence to come.
“The good news for longer-term investors is that no single piece of this puzzle warrants such a massive shift in sentiment; this looks to be more about a perfect storm of factors. Calmer waters should prevail and longer-term growth trends like the AI revolution remain very much intact.”
