Tue, 27th Feb 2018
The FTSE 100 ended the trading day on Friday down by 1.3 percent, following on from a 1 percent loss on Thursday after the BoE announced that it would be holding interest rates for the short term - although it did indicate that rates may rise again in the near future.
The statement following the BoE’s regular policy meeting sent the pound rising, which hampered equities. Meanwhile, China’s main stock index slipped by four percent, while the Dow Jones, which had slipped sharply on Thursday appeared strong at opening.
Analysts believed that the recent developments were not foreshadowing a massive shift in the health of the global economy. Overall, the outlook for the economy remains positive. There is little reason to believe that there is any contagion that could spread from equities to asset classes, or to the rest of the economy - credit markets, forex and interest rates are all relatively calm, in spite of there being a multi-year level of volatility in the stock markets.
The German DAX and French CAC both suffered heavy losses on Friday. The CBOE Volatility Index, however, was sat at 30. This index is often referred to as the ‘fear index’, and it had surpassed 50 on Thursday, so a fall to 30 is a good sign that the markets may be about to stabilise and return to trading on economic fundamentals, rather than on technical signals which at the moment have been driving the index in a less than positive direction.