Fear stalks shares despite US recovery

US stocks rose yesterday and helped stem a decline in global equities still roiled by concern that slowing growth will spread, as crude’s advance past $31 a barrel boosted energy shares.

Stock markets from Europe to Asia retreated in the wake of the rout in American stocks on Wednesday, while the cost of insuring corporate debt climbed.

Traders have been whipsawed in 2016, with equities around the world off to their worst-ever start to a year as oil plummeted to levels last seen more than a decade ago and China struggled to maintain control over its markets.

“This is the relief rally we’ve been waiting for,” said Bruce Bittles, chief investment strategist at Robert W Baird, which oversees $110bn in investments.

US stock indices have tumbled more than 7% since the start of 2016 after ending last year little changed.

European share markets and heavily commodity-dependent currencies took a fresh beating yesterday.

Europe took another 2% hit as fears that French car makers were being dragged into the emissions scandal sent the likes of Renault down as much as 20%.

“Since last September, stock markets have been desperately seeking out confidence amid the worries of recent years about global growth and China,” said Noel O’Halloran, chief investment officer at Dublin-based Kleinwort Benson Investors, which manages €7.7bn in investments.

“The market has probably over-reacted to the China growth fears... from my perspective it is probably a good opportunity to buy.”

Capital Economics in London said it was unlikely the world was facing a recession.

“Suggestions that the global recovery is likely to run out of steam simply because the business cycle is now quite mature look wide of the mark,” it said.

Brent and US crude both bobbed back above $30.70 a barrel in European trading, but the previous day’s slide into the $20s for the first time since 2004 left nerves jangling.

Canada, one of the big global oil producers, saw its dollar dive against the dollar to its lowest level since April 2003.

“It is more selling of risk and it is difficult to see a way through this,” said Gavin Friend, a strategist at National Australia Bank in London.

Adding to the risk-adverse sentiment, a gun and bomb attack in Jakarta sent the rupiah down around 1% and stocks 1.7% lower.

In Europe, investors were also not getting much encouragement from the region’s two biggest central banks, the ECB and the Bank of England.

The Bank of England kept its interest rates on hold in its first policy meeting of the year although one member continued to call for a hike which help sterling kick away from a five-and-a-half year low.

The euro, meanwhile, dipped back under $1.09 as the ECB published minutes of its December meeting, when it disappointed traders with a more modest easing package than expected.

The accounts pointed to room for another minor cut in rates but they also followed a Reuters story that a key group of the bank’s policy makers remained wary about further stimulus steps.

Investors are becoming increasingly worried, though, that the US economy will not be strong enough to withstand the four rate hikes the Federal Reserve has suggested for this year.


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