UK shares slip between the volatility of the market

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UK shares fell on Friday morning, but the declines were not as large as those seen in Asia and the USA.

At noon, the FTSE 100 was down 48.39 points, or 0.67%, to 7,122.30.

European markets raised the most serious losses. In germany the Dax and the French Cac 40 index has gone from opening lows of 0.4% and down 1.4% for the lunch hour.

Asian markets saw heavy falls during the night, while on Thursday, the Dow Jones fell by more than 1,000 points for the second time this week.

The great sell-off around the world this week have been blocked in part of the fears for the prospects of higher interest rates.

In Asia Friday, Japan’s Nikkei 225 shares index closed down 2.3%, while China’s Shanghai Composite fell 4.1%.
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In the USA, the Dow Jones closed Thursday’s trading session up 4.2%, less than 23,860, and the broader index S&P 500 closed 3.8%.

On Thursday, declines the average Dow and S&P 500 has dropped by more than 10% from the record levels set in the month of January, a threshold which analysts call a correction.

Bank of England deputy governor Ben Broadbent told the BBC that the markets may have underestimated the prospect of a resumption of inflation.

“If you look at what happened last year, especially in the United States, but also in other equity markets, there is extremely strong growth, considerable increase of prices, as you gradually become aware of how strong the global economy,” he said.

“If the markets are responding understandably to the growth, it is possible that they were not pricing the risk, that the growth should produce some inflation and interest rate hikes, and I think that what you’re seeing now is the effect of that realisation.”

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Sue Noffke, UK equities fund manager at Schroders, told the BBC that, given how well equity markets have done so for the past few years, the sell-off this week was not unusual.

“In the context of the salt we have seen, certainly this type of pull-back of 5-10% is pretty normal for the markets – not only is it not the normal state for the last couple of years where we have seen very low levels of volatility and very small levels of weekly or monthly moves.

“The [economic] fundamentals have not changed, have not yet deteriorated. What happened is a little bit of steam came out from what was quite a heated situation at the beginning of the year.”Why are the markets falling?

The global sell-off began last week, after a solid jobs report raised expectations that the Federal Reserve would need to raise interest rates more quickly than expected, because of the strength of the economy.

A concern that has driven the pullback by stocks.

On Thursday, the Bank of England seemed to offer support for the view that rates in general are on the rise.

The Bank has left interest rates at 0.5% at the meeting, but said that a strengthening of the economy meant interest rates were likely to rise faster than the markets expected.

Also worrying investors was a government budget proposal announced by US lawmakers, which sets spending limits and could fan inflation.

Bond yields in the UNITED states have also increased in the last few weeks, usually a signal of higher rates.

Higher interest rates push up borrowing costs for companies and individuals, which can damage the profits of the business and dampen economic activity.

At the same time, higher interest rates can make investment alternatives to shares, such as bonds, more attractive.