London led a European share-price rally this morning after the savage sell-off seen earlier in the week.
Shaking off the war of words between President Donald Trump and the US central bank, the Federal Reserve, traders and investors marched back into stock markets in a buying frame of mind.
All eyes now will be on Wall Street when it opens later today. Yesterday saw more falls after heavy selling on Wednesday. The blue-chip Dow Jones Index ended Thursday down 2.13% at 25,052.83, while the broader-based Standard & Poor’s 500 index closed down 2.06% at 2,728.37.
The tech-heavy NASDAQ index was not spared – it closed 1.25% lower at 7,329.06.
“A significant hit”
A number of factors appear to have triggered the sell-off. Rising trade tensions between the world’s two largest economies, America and China, have certainly contributed to the turmoil, as acknowledged by some of those attending the annual meeting of International Monetary Fund (IMF) in Bali, Indonesia.
Christine Lagarde, managing director of the IMF, warned that worsening US-China trade relations threatened the world economy with “a significant hit”.
Mr Trump said the Fed was “making a big mistake” in raising rates, adding: “I really disagree with what the Fed is doing. The Fed is going loco. I think the Fed has gone crazy.”
Tensions between the White House and the Fed are not new. Ronald Reagan dropped heavy hints in the run-up to his 1984 re-election bid that higher rates would spoil his “morning in America” narrative. His successor George HW Bush blamed higher rates for costing him the 1992 election.
Speaking of Fed chairman Alan Greenspan, he famously said: “I re-appointed him. He dis-appointed me.”
Brexit and Italian policy also in the frame
But Mr Trump’s language has taken hostilities between the presidency and what is an independent central bank to a new level.
Other possible contributors to the share sell-off are thought to include the grinding process of the Brexit negotiations and the clash between the Italian government and the European Commission in Brussels over Rome’s plans to loosen fiscal policy.
In London this morning, the FTSE 100 Index was 0.59% higher at 7,048.11, while the more domestically-focused FTSE 250 index was 1.31% up at 19,075.03.
Amsterdam shares rose 0.19% to 518.86, while the Madrid market was 0.14% higher at 9,020.90.
Stronger markets in Europe may help allay fears of a classic “autumn crash”, as seen most markedly in October 1987. One theory behind the recurrence of sudden sell-offs in the autumn is that senior workers have returned from their summer holiday and are offloading unsuitable stocks bought in their absence by junior staff.