Markets brace for volatility after fall

Global equity markets are bracing for more volatility as bourses remain on the back foot after the Dow’s biggest yet daily fall on February 5.

The Dow’s recovery a day later, when it rose 2.33%, proved short lived as markets remain on tenterhooks about the effects of a more aggressive hike in interest rates by the US Federal Reserve later in 2018.

The Fed might pencil in four to five increases in 2018 from three previously.

The Dow opened 1% higher on Friday, but European and Asian markets were again sharply lower on the day. The JSE closed 1.29% lower at 55,902.6 points on Friday, ending the week 4.7% lower.

The FTSE fell to the lowest level in more than 12 months, after the Bank of England expressed a hawkish forward view, as UK consumer inflation hit 3%.

US bond yields continued to rise on Friday, with the 10-year treasury bid at 2.8548% from 2.8257%.

Rand Merchant Bank analyst Isaah Mhlanga said the big question now was if the market setbacks represented a sustained correction.

The VIX volatility index has been a useful indicator in the past, as a rise usually precipitates further market weakness. The VIX index rose 37% to 49 points on February 5 but has since fallen. On Friday it was rising again, hitting 33 points.

“This must have sparked a flight to safe haven assets but, so far, the index does not reflect any panic,” Mhlanga said.

Investors across the globe were finding it difficult to decide whether to buy the recent dips or remain on the sidelines until the dust settles, said FXTM analyst Hussein Sayed.

Fixed-income markets had started to look attractive and if the surge in bond yields resumed there would be more incentives to pull out from stocks to bonds, he said.

The Dow is now more than 3% lower in 2018 and the JSE has lost 6.05%.