Following the disappointing non-farm figures it’s been an edgy week for equities with the common theme being volatility.
Any rally has been swiftly followed by nervous traders cashing in their chips wary of just where the growth in consumer spending and trade needed to stimulate the global economy is going to come from.
On Monday Hungary’s government moved to smooth fears that it was facing a Greek-style debt crisis. Finland had the dubious honour of becoming the first EU country to suffer a ‘double-dip’ on Wednesday as January-March GDP figures showed a fall of 0.8% against a year ago and a drop of 0.4 versus the last quarter of 2009. However, figures released Thursday showed that its exports had since risen from 7% from a year earlier, resulting in Finland reporting a trade surplus for the first time in six months.
A good example of this week’s volatility was Thursday. At mid-morning the FTSE 100 was languishing some 26 points down only to rally later in the day and close with 0.92% gain. Sentiment was influenced by news from Asia with strong GDP figures from Japan, positive employment figures from Australia and a huge export rally in China.
It’s been an awful week for BP again. US commentators, pundits and talk-show hosts and even President Obama have made the company and the UK the punchline in an assortment of put-downs and gags. Perhaps derservedly so as its crisis management of the Gulf of Mexico spill has been pretty average from all angles.
A barrel full of ‘politically wrong’ remarks by its chief, Tony Hayward, has bookmakers suggesting he’ll be lucky to see the year out in his current position. Thursday saw US government scientists claiming that BP’s flow rate figures were hopelessly out and suggested that the amount of oil leaked is actually 40,000 barrels per day, double that previously thought.
The UK oil giant has now lost about £56 million in its stock market value since the explosion on April 20. However, on Friday shares in BP opened up some 5% as investors sensed a bargain.
In the UK, media attention will now shift to the emergency budget planned for June 22.
A strong, sensible budget could be just the medicine the UK needs against the backdrop of the contagions in eurozone, Asia, US.
Analysts will hoping to see tough but fair austerity measures that bring reassurance that the coalition can show true leadership in difficult times. However any muddling of figures or messages will be pounced on as evidence of the coalition not being up to the job.
But the £156bn question is: will cutting public spending and tax rises have a positive or negative affect on the UK’s growth and recovery? An answer to this will only begin to form in the weeks, months after this budget. Clearly, steps to cut the budget deficit are needed to appease the credit rating agencies, but draconian measures could send a key component of any UK recovery – consumers – back into their shells.
Nick Dockerty is a financial writer and researcher for IG Markets, a leading CFD provider. The above comments do not constitute investment advice and IG Markets accepts no responsibility for any use that may be made of them.