The FTSE 100 was down marginally on Tuesday in quiet trade as investors enjoyed the UK heatwave awaiting a series of economic data points later in the week, including US and UK inflation, Chinese retail sales, and UK GDP growth.
Although the FTSE 100 was down around 0.15% at the time of writing, there was an ‘onwards and upwards’ feel to trading on Tuesday with the recognition there are still risks to equities – but not to the extent suggested by wild market swings last week.
“Last week was dominated by news of Tokyo’s stock markets plummeting, with a 12% collapse on the Monday coming hot on the heels of a 6% decline in the previous session,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.
“The bounce-back began the next day and, after last night’s 3.5% recovery in the Nikkei 225 index, the Japanese market has now recovered all of its losses. The wobble was initially attributed to signs of weakness in the US economy, which could have posed challenges for Japanese exporters.”
Traders could have been forgiven for thinking the entire financial system would collapse for very brief moments last week. However, the cause of the panic, the unwinding of the Japanese Yen carry trade, looks to have largely run its course.
“The calmer waters partly reflect the steadier showing of the yen after interventions from the Bank of Japan. This means less pressure on the yen carry trade where traders borrowed cheaply in Japanese currency to invest in areas like the US stock market,” said AJ Bell investment director Russ Mould.
“However, this does suggest that the trade may not have fully unwound and it therefore remains a shadow hanging over the market should volatility return.”
The dispersion of daily performances for FTSE 100 stocks was very tight on Tuesday, with Sainsbury’s leading the index with a 2% gain and Burberry bringing up the rear with a 1.8% loss. Most other stocks were up or down less than 1%.