World stocks climb again after steep correction on rate rise fears

7 February 2018, 07:24

World stock markets have rallied following days of turbulence over fears the era of cheap money, that has helped build record values, is all but over.

Asia and Europe followed a positive end to a volatile session in the United States by rising on opening - the FTSE 100 having lost £77bn in market value on Monday and Tuesday, hitting pension and ISA savings in the process

It began trading on Wednesday by rising 0.8% - led by mining stocks and some of the investment shares worst hit in the sell-off, which had taken the market back to levels last seen in April 2017.

By Wednesday's closing, the FTSE was at 7279.42 points - up 138.02, or 1.93%.

Other European markets saw similar increases which followed a rebound in Asia that had tracked Wall Street's performance.

In the US, the Dow Jones had slipped 0.1% but had been in positive territory for most of the day.

The positive trading was seen as an admission the recent bloodbath was overdone - given the fundamentally strong US economy.

But market experts largely saw the panic as a long overdue correction, rather than a crash, which at its height saw $4tn of value erased from world stocks in a single day on Monday.

There were fears expressed ahead of the falls that equities were overstretched following months of record highs.

They included that many values were failing to reflect earnings and were inflated by post-crisis era stimulus cash - quantitative easing by central banks aimed at bolstering money supply.

Key US employment data last Friday stoked concern that a faster pace of interest rate increases was on the way after average wage growth accelerated markedly.

Neil Wilson, senior market analyst at ETX Capital, sounded a note of caution on the prospects for a day of calm reflection - pointing out that a key volatility measure, known as Vix, remained at a high level.

"Dow futures are about 200 points offside this morning so there is still plenty of volatility in there.

"We note that US ten year yields remain close to 2.8%, while the Vix remains elevated at around 30 and this suggests the relative calm of the last 18 months has ended and we are in now in store for more gyrations in equity markets.

"Certainly there is a risk that yesterday's rally is a fake out before another selloff."