Major equities markets in US and Europe show tentative recovery

Major equities markets in the West were boosted in an under an hour of US indices opening, except the German Dax which continued to drop in value, but the causes of recent volatility are still showing.

Days of volatile trading activity showed signs of easing as US markets began to settle within an hour of opening today, with the Dow up 1.4%, the Nasdaq lifted 2.6% and the S&P 500 advancing 2% at 10.22 ET (15.22 GMT).

The improved performance in US equity markets owes largely to the expectation the Federal Reserve’s Open Market Committee will announce a third round of asset purchasing later today, expected to aid liquidity.

Equities markets in Europe reacted positively to the better news from across the Atlantic, including the UK’s FTSE 100, up 0.9% at 10.30 ET (15.30 GMT) the French Cac 40 which increased more than 1% and even the Athens Stock Exchange which made a slight gain of almost 0.2%, having dropped below 1000 points yesterday.

But in an indication of ongoing volatility in financial markets, the usually strong German Dax fell a further 0.3%, and the Euro Stoxx 50, made up largely of German stocks, dropped off by another 0.1%.

Henderson Global Investor’s chief investment officer David Jacob said recent volatility owes to the interconnectedness of governments and financial markets, and a loss of faith by the latter in the former.

“The issue this time is the market’s faith in the governments that underpin our economies.

“The current turmoil is being brought about because markets no longer feel those government participants have the tools or balance sheets to further stimulate economies and impact markets sufficiently to prevent a slow down,” he said.

Amid the volatility, Henderson’s equity teams are advocating investment in corporates within developed markets that hold strong balance sheets, and have demonstrated solid cost control and good cash levels, he said.

Ongoing uncertainty over solutions to the debt crises in both the US and Europe has meanwhile prompted chief investment officer at Skandia Investment Group James Millard to remain cautious on developed market equities.

“We remain broadly neutral on equities as confidence in policymakers on both sides of the Atlantic has fallen sharply.

“Although we think economic recovery will continue and equities are cheap, we acknowledge the risk problems in either the US or peripheral European bond markets could lead to weaker equity markets,” he said.

The Group is positive on emerging market and Japanese equities however, where economies are not grappling with such heavy debt burdens.


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