US and European shares recover from turbulent week

US and European stock markets rebounded on Friday, following a turbulent week in which shares fell to their lowest prices in months. 

 

US stocks were up by more than one per cent at close, with the S&P 500 experiencing its biggest gains in over a week. The Dow Jones Index was up by 1.6 per cent.

 

The main indexes also closed higher in Europe, with the FTSE 100 up by 1.9 per cent compared to the previous day. Bourses in Paris and Frankfurt ended three per cent higher.

 

Markets had performed badly during the week up to that point. This was driven mainly by fear of Ebola spread and concerns over a global economic slowdown. By Friday, the FTSE 100 had dropped by 10 per cent since the beginning of September.

 

Only yesterday, the Bank of England’s chief economist Andrew Haldane warned that interest rates may need to be kept lower for longer due the deteriorating state of the world economy. He said the UK's agony index was at "painfully low" levels and has been five percentage points below its 1970-2014 average since 2008. 

 

"This implies interest rates could remain lower for longer, certainly than I had expected three months ago," he said during an announcement to business leaders. 

 

But yesterday, investors began to regain enthusiasm following one of the worst spells in global markets. Words of reassurance from some US and European policymakers, along with some more promising US data, encouraged activity. 

 

New unemployment claims in the US fell to a 14-year low last week, while September industrial output rebounded sharply. James Bullard, head of the St. Louis Federal Reserve Bank, also helped by saying yesterday that the Fed would benefit from continuing its bond-buying stimulus program for longer. 

 

However, while there was a marked improvement on Friday, markets remain far from steady. “We need to see a period of better data from the US, and especially Europe, for markets to really calm and volatility to cool,” said Chris Weston, chief market strategist at IG Markets in Melbourne.