The FTSE 100 staged a recovery on Tuesday as it bounced back from severe selling on Monday sparked by concerns over Ukraine and inflation.
The recovery in the FTSE 100 – and other European indices – started in the US session overnight where major US equity indices staged a remarkable recovery.
Having been 4% down on the session yesterday, the S&P 500 rallied to finish the session positive.
Such a dramatic turn around provided the FTSE 100 with the impetus to open higher to trade as high as 7,376, before falling back.
“Highly unusual movements on the US stock market yesterday are difficult to explain. While it is easy to say that the S&P 500 going from a 4% decline to a 0.3% gain in a single session was investors simply buying on the dip, nothing has changed in terms of the market headwinds. Therefore, we could be looking at a dead cat bounce rather than the start of a market recovery,” said Russ Mould, investment director at AJ Bell.
However, evidence from the US futures market highlights the concerns that drove yesterday’s selling are far from over.
S&P 500 futures were pointing to a lower open on Tuesday as the market faded yesterday afternoon’s sharp rally ahead of the Federal Reserve meeting tomorrow.
One of the key causes of recent volatility is the move away from easy monetary and back to normalisation which is causing problems similar to drug addicts suffering withdrawal symptoms.
“Investors are still bracing for a fresh bout of volatility this week, following the rollercoaster ride on Wall Street and fresh falls in Asia. Although indices lurched haphazardly back into positive territory on the Nasdaq and S&P 500, a heightened sense of nervousness remains about just how tough the Federal Reserve will talk and act to try and get increasingly troublesome inflation under control,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
Streeter also underlined the importance of geopolitical tensions around Ukraine on market confidence.
“The deteriorating situation in Ukraine with the stand-off continuing as diplomats moves falter, is adding to heightened tensions on the markets, with fears a conflict could unleash a fresh front of chaos, including making the energy crisis facing Europe even worse.”
The FTSE 100’s rally was driven by cyclical sector including banks and miners – Standard Chartered was the FTSE 100’s top riser.