Whilst for many the attention in recent weeks will have been on the Paris Olympics, I returned from holiday to a rout in global stock markets.
The Japanese market had just suffered its biggest decline in nearly four decades, the technology-focused Nasdaq index was falling sharply and the FTSE100 was down by over 2% to its lowest levels since April. My sun lounger was suddenly a very distant memory! The cause of this recent weakness has been widely considered, with the primary culprits seemingly weaker US jobs data, and a strengthening of the Japanese Yen against the US Dollar. Investors have also spent much of last week considering whether the recent hype surrounding artificial intelligence, which has buoyed many a tech company’s share price, will remain sustainable if the global economy starts to slow.
Although some of these declines have been recovered, one thing is for certain – market volatility has increased significantly. The VIX index, which is a measure of short-term expected volatility, rose to levels not seen since during the pandemic and although it has fallen back over recent trading sessions, it remains more than 50% higher than it did a couple of weeks ago. It shouldn’t come as any great surprise that markets can be more volatile during the summer months. Many traders will be on holiday, with lower volumes sometimes acting to amplify the impact of economic news, geopolitical events and other unexpected developments.
This week investors will be provided with an update on UK inflation, which is expected to have risen slightly above the 2% target level – while tomorrow will bring an update on UK GDP for the 2nd quarter of the year. Both reports will likely be important when gauging the next move from the Bank of England.
