Wall Street and European markets face renewed pressure

European stocks were back under pressure on Thursday, as the bout of volatility this week that brought an end to a lengthy period of calm across world markets continued to reverberate.

Germany was hit hardest as the selling took hold across the region, although the declines did not match the intensity seen earlier the week, when losses were at their steepest since the aftermath of the UK’s 2016 vote to leave the EU.

In the European afternoon, Frankfurt’s Xetra Dax fell 1.4 per cent, eroding a recovery of 1.6 per cent made over the previous session. Its decline over the week stood at more than 2 per cent. London’s FTSE 100 fell 1 per cent, with financial stocks failing to hold gains from an intraday rally. The Europe-wide Stoxx 600 was down 0.2 per cent.

The jittery feel to trading came after a rebound over the previous session proved shortlived, although the regions indices were all above session lows. Meanwhile, opening trade in the US added to the sense of uncertainty as S&P 500 slipped by 0.1 per cent. On Wednesday, a late sell-off wiped out an intraday rally and took the index down 0.5 per cent overall.

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The Vix volatility index remained shy of its 3-year peak over 50, touched at the height of the selling earlier in the week, to read 24.72. It started 2018 just under 11.

"Corrections like this can be shortlived but painful since both the start and the end are difficult to call in the absence of clear triggers," said Pierre Blanchet, head of multi-asset strategy at HSBC.

“However, we do not believe anything has fundamentally changed or that the correction represents a shift to a new market paradigm.”

Earlier, Asian stocks had notched up modest gains, with Japan’s Topix up 0.9 per cent and the Hang Seng gaining 0.4 per cent.

Over the week, the broad Euro Stoxx 600 fall amounted to 2.1 per cent. Meanwhile, the FTSE 100 added to its status as one of the worst performing major markets, down 4.1 per cent.

Analysts remained braced for further uncertainty.

Celia Dallas, chief investment strategist at Cambridge Associates, warned of “continued pressure”, adding: “Panic selling among retail investors would also increase if declines persist. Indeed, large S&P 500 exchange traded funds have seen outflows in recent days.

“But as companies exit earnings-driven blackout periods and are again eligible to repurchase stock, this may provide a countervailing force.”

– Copyright The Financial Times Limited 2018