World stock markets bounce back after turbulent week
Global stock markets bounced back at the end of a tumultuous week as policymakers sought to play down fears the world was on the brink of a fresh financial crisis.
US, European and Asian markets all rallied after weeks of losses as oil prices rose and policy makers pledged more support for the economy.
It was European Central Bank president Mario Draghi who provided the greatest boost to stock prices after his hint on Thursday that more money printing and interest rate cuts could be around the corner. That sparked a relief rally in European and US stock markets which continued into Friday and helped London’s FTSE 100 index clock up its first week of gains this year.
In New York US stock markets managed their first week of gains this year as the bounce back in oil prices lifted energy stocks. The Dow Jones Industrial Average closed up 210 points, 1.3%, the S&P 500 gained 2% and the Nasdaq Composite jumped 2.7%.
UK chancellor George Osborne called for “cool heads” while Bank of England governor Mark Carney said the outlook for the world economy had not changed despite a dramatic start to 2016 on financial markets that has seen trillions of dollars wiped off the value of global shares amid panic selling and a slide in oil prices.
A cold snap in parts of Europe and the US also helped oil prices rebound to $32 a barrel after they had plumbed 13-year lows below $28 earlier this week. Oil, other commodity prices and shares have all been under pressure in recent weeks as investors fret about a slowdown in global growth and signs of weakness from economic heavyweight China.
At the annual World Economic Forum in Davos, Osborne claimed the UK was a “bright spot” in the world economy. But amid signs Britain’s economy was losing steam he sought to shift the focus to external forces, repeating a warning that the UK faced a “dangerous cocktail of risks from the global economy”.
Speaking to UK business leaders at a lunch with the CBI lobby group, Osborne said: “We have been a chink of light cutting through the global gloom. But that gloomy backdrop means we cannot rest or become complacent.”
In a thinly veiled attack on opposition politicians calling for a let-up in spending cuts, Osborne added: “We need to continue to implement our long term economic plan. We need to keep cool heads as the market heats up.”
Carney has been less sanguine over the state of Britain’s economy and earlier this week sent clear hints to financial markets that interest rates would be held at their record low of 0.5% for many months to come against the backdrop of a weaker world economy and a slowdown in the UK.
On Friday, Carney used a newspaper interview to play down fears that volatility on financial markets would further dampen the economic outlook. He told the Wall Street Journal that the Bank’s forecast in November was already below the consensus and the International Monetary Fund’s outlook.
“It is a pretty modest world. It is a low 3 [%] growth world the next few years. Embedded in that was a fairly sharp markdown of emerging markets and downside risks. Recent events are just reinforcing that. I don’t think they have fundamentally changed that trajectory,” he said.
Panic selling earlier in the week had pushed several global markets, including London and Japan, into bear market territory. But the week ended on a brighter note for investors with the FTSE 100 index in London up 126 points on the day, a rise of 2.2%, to 5,900. Germany’s Dax rose 2%, France’s CAC added 3.1% and Spain’s Ibex advanced.
Draghi’s hints had kicked off a “full-on relief rally” said Jasper Lawler, market analyst at spreadbetting firm CMC Markets.
“The FTSE 100 has seen its first weekly gain this year. The gain is all the more impressive after Britain’s main stock index fell into bear market territory with a 20% decline to the lowest levels since 2012 on Wednesday,” Lawler added.
Wall Street also got off to a good start, with the Dow Jones rising 132 points, or 0.8%, to 16,014 by the time of the London close.
In Asia, the Nikkei in Tokyo rallied nearly 6%, its biggest one-day gain in four and a half months, helped by a weaker yen and speculation that the Bank of Japan could unveil new stimulus measures at its meeting next week.
In China, the benchmark Shanghai Composite index rose 1.2% on Friday and ended the week slightly higher than it began for the first time this year, edging up 0.5%. The CSI 300 index of the largest listed companies in Shanghai and Shenzhen closed up 1%, leaving it down 0.2% over the week.
Brent crude rebounded more than 7.5%, adding $2.23 to $31.48 a barrel, helped by comments from Saudi Arabia, the world’s top oil producer. Khalid al-Falih, the chairman of state-owned oil company Aramco, said at the World Economic Forum in Davos that current prices were “irrational”.