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FTSE 100 rebounds amid ongoing fears over China

Published 27/08/2015

The FTSE 100 Index jumped more than 2 per cent higher in early trade, having shed 1.7% in the previous session
The FTSE 100 Index jumped more than 2 per cent higher in early trade, having shed 1.7% in the previous session

London's blue chip share index has rebounded after Wall Street rocketed higher overnight, but experts warned of more volatility to come amid ongoing fears over China.

The FTSE 100 Index jumped more than 2% higher in early trade, having shed 1.7% in the previous session in a see-saw of ups and downs.

Stocks across Asia and Europe rallied after the Dow Jones Industrial Average in America soared more than 600 points, or 4%, in its steepest rally for nearly four years.

Experts said Wednesday's session in America was encouraging, given that its rise broke a six-day slump.

But they warned that with worries remaining over China's economy, the rally could prove to be a "dead cat bounce".

Tony Cross, m arket analyst at Trustnet Direct, said: "Volatility like this doesn't tend to disappear fast and with volumes set to thin out ahead of the long weekend, there's certainly the prospect of seeing more big moves in the near term."

China's Shanghai Composite Index, whose sharp drop Monday triggered a global sell-off, raced 5.3% higher in its biggest gain for eight weeks, while the Hang Seng Index in Hong Kong surged more than 3.5%.

In Europe, the Cac 40 in France and Germany's Dax were also sharply higher, up more than 2% each.

Markets have endured some of the worst volatility since the financial crisis amid fears over China's slowing economy, which saw the country slash its interest rates for the fifth time in nine months earlier this week to shore up flagging growth.

Mining stocks, which have suffered heavy losses amid the stock market rout as commodity prices have slumped, were among those leading the rebound in London.

Anglo American and BHP Billiton, the world's biggest miner, rose 6% and 5% respectively.

Asian-focused bank Standard Chartered was another big riser, up 5%, with high street lenders HSBC and Barclays also enjoying share gains.

The rally seen overnight in America was fuelled after officials in the US Federal Reserve said the stock market turmoil had weakened the case for an interest rate rise next month, as well as some upbeat US economic data.

Worries over an impending rate hike in the US have added to the China slowdown concerns and rattled investor confidence.

But the recent stock market declines are thought likely to have put rate hikes off the agenda for the short-term in both the US and UK, where the cost of borrowing has remained at 0.5% for more than six years.

Traders will be looking for further clues on the timing of rate hikes when central bank bosses - including Bank of England governor Mark Carney - gather from today for the annual economic policy symposium in Jackson Hole, Wyoming.

Michael Hewson, chief market analyst at CMC Markets, said not only had the immediate threat of a US rate rise receded, but some even believe the Fed should launch further economic stimulus efforts, in the form of more quantitative easing (QE).

He said: " Given the events of the past few days the narrative appears to be shifting and while a week ago all the talk was of a possible rate rise and the timing of such a move, we're now starting to hear calls for further easing in the form of QE4."

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