Stock markets braced for more losses amid volatility and inflation fears

The world’s financial markets are braced for more volatility this week amid predictions that stocks could fall further before stabilising.

Last week saw $4 trillion wiped off the value of shares around the world and the most important market, the United States, entered into an official correction after falling more than 10% from its record level in January.

Wall Street staged a late rally on Friday as the Dow Jones finished 330 points higher – almost 1.4%.

But the Australian stock market, which will be the first to test the water when it opens at 10am on Monday morning (11pm GMT) and is expected to open down around 0.5% or 28.5 points. The mining and energy sectors could be the biggest drag on the bnechmark ASX200 index amid falling prices for oil, gold, iron ore and other key commodities.

David Bassanese, chief economist at BetaShares Capital in Sydney, said in a note on Sunday that despite the big falls last week, the selling could continue.

“History suggests the depth of corrections – assuming the underlying bull market persists – don’t usually get beyond 15%, so there’s certainly some scope for market weakness before a bottom is reached,” he said.

Investors would be jittery about US inflation figures on Wednesday, he said. The market was forecasting a “fairly benign” 1.7% annual prices growth, but anything above that was likely to result in more stock losses.

The fear of rising US bond yields and higher inflation thanks to higher wages is what sparked the current wave of selling on 2 February as investors digested the prospect of higher interest rates as a result.

Craig James, CommSec chief economist in Sydney, said the US rally on Friday gave cause for hope but traders were still likely to face continued volatility.

“We may be a little bit softer at the start of trade on the back of the resources but overall I think it’s going to be a choppy session,” he said. “The volatility is still going to be with us for most of the week.”

(@wolfofwolfst)

What Crushed Stocks? Treasury yields don’t matter – until they do. Mortgage rates jumped. https://t.co/xWKDd064n2 pic.twitter.com/xZDHuhoL4y

February 11, 2018

Analysts at JP Morgan said in a note on Saturday they remained “constructive” about world stock markets because sustainable topline growth driven by higher wages would underpin earnings and benefit shares.

The benchmark S&P/ASX200 index ended Friday down 0.9% at 5,838 points leaving it down 4.6% for the week. In the US, the benchmark S&P 500 – a much broader index to the 30-company Dow Jones average – fell 5.2% for the week, its biggest weekly percentage drop since January 2016. The FTSE100 in London ended the week about 5% down.