European stock markets embark on jittery rebound

February 08, 2018 | 09:44

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European and US stock markets mounted a nervous recovery on Wednesday (Feb 7) with investors still reeling from dizzying price swings since the start of the week, but the likelihood of more volatility kept investors on the edge of their seats.

european stock markets embark on jittery rebound

Logo of the London Stock Exchange. (AFP Photo/Ben Stansall)

Key European stock markets managed to claw back around two-thirds of the previous day's losses by the close, and Wall Street turned a weak start around to post credible gains approaching midday in New York.

"Equities are in recovery mode today after enduring a turbulent week," said David Madden, market analyst at CMC Markets. "It has been a brutal week for investors, but some are keen to step in and take advantage of the fall in prices."

But Madden also detected a market feeling that "we could be in for another leg lower, and for that reason some dealers are reluctant to get back into the market".

Divided opinion on the outlook for markets means that "volatility is back, and investors had better get used to it," said Lee Wild, head of equity strategy at Interactive Investor.

Following recent strong gains, a global stocks sell-off began on Friday when bright US unemployment data sparked concern of high inflation and in turn faster-than-expected increases to US interest rates.

Wild noted that "just as markets cannot keep rising forever, they must also stop falling at some point, but it's still unclear whether we've reached a level where buyers see value again".

ASIAN RALLY FADES

In Asia, traders began the day on a bright note as they took their lead from a recovery on Wall Street overnight.

However, as the day wore on selling began to kick in. By the end of its session, Tokyo had added just 0.2 per cent - having opened almost three per cent up - while Shanghai lost 1.8 per cent and Seoul plunged 2.3 per cent by the close.

Analysts have been eyeing an increase in US bond yields that has been triggered in large part by a recent weakening of the dollar.

The dollar continues to be the main driver on the currency markets due to "the perception the Fed are going to be more hawkish than anticipated this year," said Madden at CMC Markets UK.

"There (are) growing concerns (that) the US central bank will hike interest rates four times this year."

Such expectations boosted the greenback against most of its major peers on Wednesday.

Bitcoin meanwhile surged once more, to around US$8,000, a day after it slid to stand below US$6,000 for the first time since mid-November.

Despite Wednesday's strong recovery, it remains well down on its record high of almost US$20,000 reached just six weeks ago.