Chief Market Analyst David Jones provides a closer look at some of latest news impacting global markets. From drops in the stock markets to a gloomy IMF outlook, and an increasingly harder Brexit.
The stock markets
Investors are likely to be coming into this week somewhat nervous – and feeling a bit beaten up – after the volatility seen in stock markets last week. It was a torrid week for stock markets with major falls seen in the USA, Europe and Asia. Some of the leading technology stocks such as Facebook, Amazon and Netflix have been amongst the hardest hit companies.
There is a famous market saying: "bull markets climb a wall of worry" and this has definitely been the case this year.
The broader market strength has mostly been driven by a small collection of these technology stocks. Investors have become increasingly worried about these companies’ potentially stretched valuations. Those concerns have been greatly compounded by:
· rising inflation in the USA,
· the prospect of higher interest rates
· Head of the International Monetary Fund Christine Lagarde commenting that stock markets look expensive.
All this served to rattle investors over the past week. As is often the case when markets drop sharply, an element of panic sets in. This results in more selling and it becomes a self-feeding drop.
There’s no denying that technology stocks performed particularly well this year. Therefore, it’s no surprise that holders of these shares were some of the more aggressive sellers. Trying to hang onto at least some of their profits as markets plunged.
Of course, we did see sharp falls in global stock markets at the beginning of February this year - only to see markets set fresh all-time highs as the year went on. It begs the question: Can markets can bounce back from this? As the latest round of US earnings season gets underway this month, it will be interesting to see if the latest profits from the tech giants bring investors back in.
Brexit is never far from the focus of traders of course and this weekend there was news of the failure to make any progress on the Irish border. The border is point of contention as there’s internal division, as well as European views on whether there should be a hard border on the British territory. The lack of consensus on the issue is likely delaying any decision made on another contentious European border, that of Gibraltar - a British Overseas Territory - and Spain.
Despite this, the euro and the pound have bounced back which could set the latter up for further recovery this week. With UK unemployment and inflation data due out soon, the pound is likely to go through a few volatile days.
Find more market insights in our latest market outlook: