The FTSE 100 made a valiant effort to rebound on Tuesday after yesterday’s earth-shattering selloff rocked the global equity market.
London’s leading index recovered some of the lost ground in early trade on Tuesday, although it barely made a dent in the losses inflicted in recent weeks. The rally was quickly sold into as the session progressed, but the losses were minor compared to recent days.
Selling such as we witnessed rarely proves to be a bottom of an equity sell off.
That said, investors were encouraged by a dramatic rally in Japanese equities overnight. The Nikkei surged 10% in last night’s Asian session as traders bought into a cataclysmic 12% selloff in the prior session.
One of the main reasons behind the recent volatility is the unwinding of the Yen carry trade after the Bank of Japan increased interest rates more than expected last week. Investors have become used to borrowing Yen to finance investing activities elsewhere, and the reversal of this trade has been near-apocalyptic for global markets.
A show of strength in Japanese equities overnight will have gone a long way to alleviate some of the fears associated with the Yen carry trade, but markets are not out of the woods yet. Concerns about the health of the US economy and overpriced technology stocks still linger.
“Investors shouldn’t assume this relative calm means markets are back to behaving rationally again: the volatility index (vix) is still at elevated levels, suggesting more turbulence to come,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“The good news for longer-term investors is that no single piece of this puzzle warrants such a massive shift in sentiment, this looks to be more about a perfect storm of factors. Calmer waters should prevail and longer-term growth trends like the AI revolution remains very much intact.”
Traders will also be relieved to see Palantir, a US tech stock heavily associated with artificial intelligence, smash earnings estimates and rally some 7% in the premarket.
In the UK, Rightmove was the FTSE 100’s top faller after it said a key contract would be terminated 1 September, resulting in a loss of around 3% of the group’s lettings members. Rightmove shares were down 4% at the time of writing.
Rolls Royce was 2.8% higher after JP Morgan increased its price target for the engine-maker to 456p.