Despatches  

Why global equities are so volatile right now

Why global equities are so volatile right now

Sentiment is driving the present very high levels in equity markets, according to Rupert Thompson, investment strategist at Kingswood.

He says markets are responding very profoundly to economic data, some days pricing in a “soft landing” for the global economy and pushing equity markets upwards, and some days pricing in a recession, and pushing equities down.

Thompson said: “Volatility remains on the high side. US equities posted a 1.5 per cent increase on Thursday, only then to reverse the gain on Friday. UK equities of course were anaesthetised over this period by a sea of red, white and blue and ended the week down 0.5 per cent. Meanwhile, government bond yields have headed higher again with 10-year yields rising 0.2-0.3 per cent last week.

In the UK, they have hit a new high of 2.2 per cent but in the US remain below the key 3 per cent level they burst through temporarily in early May. Equity moves at the moment are being driven by swings in sentiment from hopes of a soft-landing to fears of a recession, with incoming economic data viewed very much in this light.” 

He noted that there have been some signs of the economic and inflationary pressures moderating in the US. 

Thompson said: “Markets are hoping for a weakening in activity which will show efforts by the Fed to cool the economy are starting to work and remove the need for aggressive policy tightening. But it is a fine balance. If the data comes in too weak, this then just sparks fears that the economy is already falling into recession.

"The skittish mood at the moment is being reinforced by scary talk from various chief executives. Jamie Dimon, chief executive of JPMorgan, is predicting an economic ‘hurricane’ while Elon Musk has a ‘super bad feeling about the economy’.

"At the other end of the world, the news has taken a turn for the better with Shanghai ending its two month lockdown and Chinese equities duly bouncing 4.4 per cent. Still, with no change to the zero-covid policy in sight, the pandemic looks set to remain an intermittent drag on activity going forward.” 

David.thorpe@ft.com