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Experts urge calm during wild ride on Wall Street

08 February 2018

Many analysts have declared that because stocks and bond markets have trailed lower together, they are both responding to the threat of higher inflation - the catalyst for this being purchasing manager surveys and last Friday's United States jobs report, showing robust levels of employment and wage growth.

Japan's Nikkei 225 index plunged as much as 7.1 per cent but recovered some of those losses to close down 4.7 per cent at 21,610.24 on Tuesday.

The pivotal gauge of S&P 500 volatility, the VIX, did come off nearly 20 points overnight but was still relatively elevated at 29.98 per cent.

But a key USA jobs report on Friday, showing better-than-expected wage data, spooked sentiment because it raised the prospect of the U.S. central bank raising interest rates at a faster pace to cool inflation.

"Economic news from the United States has been stronger than anticipated", said David Kuo, chief executive of financial services advisory Motley Fool.

That had led some experts to warn that markets were overdue for a correction.

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In the Middle East, stocks were touched by the USA and Asian markets' sell-off, though the losses were more limited. Australian shares dropped 3.0 per cent to their lowest level since October while South Korean shares dropped 2.0 per cent.

The broader Standard & Poor's 500 index rose 46 points, or 1.7 percent, to 2,695.

The drop on the Dow was closely followed by the wider S&P 500 stock index, down 4.1% and the technology-heavy Nasdaq, which lost 3.7%.

On Wall Street, stocks saw considerable volatility over the course of the trading session on Tuesday before ending the day sharply higher.

Because when the cost of borrowing rises, investors worry about the impact of that on the growth outlook of companies that might find it more expensive to build new factories or expand.

Neil Wilson, senior markets analyst at ETX Capital, said of opening on Wall Street: "The valuations were certainly looking attractive on a forward earnings basis, providing attract entry points for a number of stocks".

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Equity markets were already in negative territory last week owing to rising bond yields and profit-taking.

"This isn't a collapse of the economy".

"The market is pricing today what's going to happen six months from now", Samalin says.

Investors will need to keep their long-term perspectives insight as nervous market conditions continue to boil short term.

"The gains since the turn of the year were rapid and the sudden downturn came as a shock" to market players, he told AFP.

James Bateman, chief investment officer, multi asset, Fidelity International, said the recent sell off in global markets is the "greatest sign of real health in markets for a long time". "The current price action may feel unusual because we have become so used to a low volatility environment, with economic data having been consistently positive across the globe in 2017". Under normal circumstances, that backdrop would see interest rates rise quickly, but in many parts of the world they are still at levels not uncommon to a recession or even a depression.

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Experts urge calm during wild ride on Wall Street