It’s been a while, but share-price volatility is back – and how! This week, the world’s main equity markets plunged sharply on Monday, bounced briefly mid-week, then slumped again on Thursday.
The S&P 500’s 4.1% plunge on Monday was the US benchmark’s steepest one-day fall since 2011. And after a brief show of resilience on Wednesday, the index lost another 3.8% on Thursday, leaving it down 10% from its January peak. A 10% fall is the usual definition of a correction, but more than a tenth of the S&P’s components are now 20% off their highs – into bear-market territory.
Other global indices suffered similar slides. The FTSE 100 lost 2.6% on Tuesday - its sharpest one-day drop since the Brexit vote in 2016 – and lost another 1.3% on Thursday. Germany’s DAX and France’s CAC also came in for heavy selling. Asian markets were hit hard too, with the Hang Seng down 9.5% for the week and Japan’s Topix down 7.1%.
Nor was the sell-off confined to equities. Yields on 10-year US Treasuries hit their highest level for more than four years, and the oil price slid around 7% from its recent peak. In the currency markets, the Japanese yen and the Swiss franc strengthened as panicked investors sought ‘safe havens’.
The wages of fear
The proximate cause of the stock-market slump was actually some good economic news. Data released last Friday showed that US wages are rising, with the hourly rate up by 0.3% over January and the annual rate reaching 2.9%. Meanwhile, US unemployment has hit a 17-year low. But higher wages imply higher inflation – and that makes a steeper path of interest-rate rises more likely. Federal Reserve officials appeared to confirm this. William Dudley, the president of the New York Fed, said on Thursday that three rate hikes this year would be reasonable, but four might be possible if the economic recovery gathers pace.
Fancy a hike?
Interest rates were also very much on UK investors’ minds. Although the Bank of England’s Monetary Policy Committee refrained from raising rates at Thursday’s meeting of the Monetary Policy Committee (MPC), it signalled that a hike might be on the way. According to the MPC, "monetary policy would need to be tightened earlier and by a somewhat greater extent" than previously expected. The pound rose in response, and this in turn weighed on the FTSE 100, whose constituent companies have substantial overseas earnings. Investors now expect the Bank of England to raise rates in May or August.
Compass points north
Britain’s outsourcing companies have had an exceptionally rough ride recently, but Compass Group provided some welcome relief this week. Following the collapse of Carillion and the crisis at Capita, catering specialist Compass announced that its organic revenue had grown by 5.9% in the fourth quarter of 2017 and raised its 2018 sales forecast to 5.5%. Its shares bucked the market’s downward trend to finish around 3% up by Thursday’s close.
In the US, one stock to defy the general gloom was Twitter. The microblog operator was one of the week’s strongest performers after it announced quarterly earnings that beat expectations and, for the first time, showed a profit. This led to its shares’ biggest single-day jump since their market debut in 2013, leaving them up more than 20% at the end of Thursday. The news was less rosy for Twitter’s well-known internet peers, with Facebook, Amazon, Netflix and Google (Alphabet) all down significantly over the week.
And finally …
What gets your goat? For the soldiers of 3rd Battalion The Royal Welsh, this is a pressing question.
In a tradition that goes back to the eighteenth century, the regiment’s mascot is a long-haired Kashmiri goat. Alas, the most recent incumbent, Lance Corporal Shenkin III, bleated his last in September. So the Queen has granted permission for a replacement to be taken from the Royal Herd on Great Orme. A suitable candidate, Shenkin IV, has already been identified.
But capturing the capricious caprid has proved another matter altogether. Unimpressed by the enticements of barrack-room life, Shenkin IV has so far evaded pursuit. His duties at Welsh rugby internationals have been fulfilled by Fusilier Llewellyn, a goat serving with 1st Battalion. Unfortunately, Fusilier Llewellyn is feistier than the average army goat and has already thrown a few headbutts at his handler, Goat Major Sergeant Jackson.
Meanwhile, the errant Shenkin IV has opened his own Twitter account – we kid you not!