European stock markets rally as volatility continues

European stock markets rally as volatility continues

European stock markets have staged a recovery after a week of precipitous falls and volatility.

London's FTSE 100 index was up nearly 1% in mid-morning trading, while Germany's Dax and France's Cac 40 were both up 1.5%.

Concerns over a weakening European economy and downwardly revised growth forecasts from the International Monetary Fund had unsettled investors.

But better-than-expected US industrial production data helped steady the ship.

The FTSE 100 has fallen 10% since early September, wiping £175bn off the value of listed businesses.

'Turbulence'
Explaining the recent convulsions in the markets, Carl Weinberg, chief economist and managing director at New York-based consultancy High Frequency Economics, said investors had taken fright over the faltering European economy and a slew of weaker global economic data.

Some "untested" economic indicators had given the impression the European market was recovering when it was not, Mr Weinberg argued.

"The underlying economy is as bad now as it was a week or two weeks ago," he told the BBC.

"But the perceptions have changed and that's causing turbulence in the markets."

Steven Saywell, head of foreign exchange strategy at BNP Paribas, said the real concern over the faltering eurozone economy was inflation, currently running at 0.3%.

"We believe the risk is it could fall even further," he said.

BNP Paribas believes European Central Bank president Mario Draghi should take bold measures to buy sovereign bonds in an attempt to convince investors that the rate of inflation would increase.

'Market needs volatility'
This period of volatility was no worse than it had been in the past, Mr Weinberg maintained, and was a necessary condition if markets were "to make money".

In recent years, central banks maintaining a policy of low interest rates had dampened market speculation, but now that it was a question of when rates would rise, rather than whether, this was stimulating investor activity, Mr Weinberg argued.

But such speculation was countered by recent comments from Andrew Haldane, the Bank of England's chief economist.

He said UK interest rates should remain low to avoid long-term economic stagnation, after giving a downbeat assessment of the UK economy.

Weaker global growth, low wage growth and financial and political risks contributed to his more cautious view.

"This implies interest rates could remain lower for longer, certainly than I had expected three months ago," he said in a breakfast meeting speech to business leaders.