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12 Aug, 2011 13:16

Volatility to linger in the markets over the weeks ahead

Global markets have seen a nervous week spurred by the U.S. downgrade and persistent debt worries in the Euro zone, and Business RT spoke with David Jones, Market Strategist at IG Index about the outlook.

RT:  What we've been seeing the past week, what do you think this is? A stage on the downward spiral? Or are we past the bottom?DJ:  “I think that the risk is, although we have had a quiet past couple of days, the risk is that we could keep going lower in the weeks ahead.It is very similar, the moves we are seeing in markets, to what was happening 3 years ago when we had the banking crisis.and then we had plenty of volatility, big slides, and then just move lower again.We have seen quite a big change in sentiment to stock markets over the last couple of weeks.” RT:  When it comes to economics, are you now expecting a second dip in the recession?DJ:  “Maybe not, not necessarily for the recession, butfrom the markets point of view definitely investors are very worried about the situation.Of course we had the US debt, went down to the wire getting their debt ceiling raised, we had the downgrade by the US last Friday, we have still got all these problems in continental Europe, with Italy and Spain.So growth isn’t very good, there is definitely the risk of a double dip recession, but I think the immediate risk is for stock markets to slide a bit further.”RT:  Are the upticks in the market a good opportunity to take risk off the table?DJ:  “Definitely that has been the theme, really, for much of August.We have seen some impressive rallies along the way, but they have been used by people to either sell short into, or get out at a better price than they could have done the day before.I think it is still a very nervous market and I think stock markets around the world have struggled over the last few weeks to hold onto rallies.And we have to let’s see if that changes this afternoon in the US, but I think the risk is we will see people taking off risk ahead of the weekend.”RT:  3 years ago when there was extreme levels of volatility there was a ban introduced on short selling in several countries, Russia included.  Do you think that could be useful to stabilize the market right now?DJ:  “Well we have had it overnight for Europe.We have had Italy, Spain, France and Belgium have introduced short selling bans on financial stocks, and that is helping the markets today.We have got, for example, here in London, Barclay’s is one of the top risers today.So we have seen strengthening banks.But it is like history repeating itself.We have got similar levels of volatility to what we had three years ago.In September 2008 there was widespread short selling bans, but over the next months, financial markets still dropped another 15-20% so, again, traders, at least in Europe, aren’t that convinced the short selling bans are necessarily going to change anything.” RT:  What are you expecting next week to be like?DJ:  “I don’t know is the quick answer to that one.I think maybe after the incredible volatility we have had in the last couple of weeks we will have a return maybe to more normal daily ranges.But I think the pressure will still remain on stock markets.I still think if we see a bit of strength, the risk is it is going to run out of steam, the sellers come back in, and push these markets down.I don’t think we are going to see any short term return, to the levels we were seeing even a month ago for Europe and the US stock markets.”