European markets on the rise as Dow recovers

The FTSE is trading higher and other European gauges are following suit, taking their cue from the US markets.

Wall Street had a spectacularly volatile day Thursday in which both the Dow and S&P wiped out in one trading session all of this year’s gains. At one point the Dow dropped some 785 points only to regain almost all of it by the end of the day and close only slightly lower. While investors are still trying to understand whether such sharp moves are the new normal for the stock markets as concerns over the US economy and rising Sino-US tensions are whipping shares into a frenzy, what is clear is that there is less longer term confidence in the stock market than there was only a few months ago.

What is also no longer clear is whether stocks or bonds are leading the way as both markets are using the other as an excuse for their volatility. US bond yields dropped sharply on Thursday as investors looked for safer assets amid the equity sell off. But similarly earlier this week the selloff in equities started over concerns that the changing of the Treauries yield curve is suggesting a slowdown in the US economy. While the yields for longer maturities are normally higher than for shorter papers on Monday the spread between the 2-year and 10-year bond narrowed while yields for 3-year bonds overtook yields on 5-year paper, the kind of inversion that has in the past been a harbinger of an economic downturn.

After a modest decline yesterday the greenback is on the rise again, strengthening against the pound 0.35%, 0.14% against the yen but trading almost flat to the euro.

Telefonica shares recover as O2 network restored

Shares in Spain’s telecom giant Telefonica are on the mend this morning, up 0.74% at €7.66, having dropped nearly 3% yesterday when the company’s UK mobile network O2 collapsed. The network, which has 25 million users and provides services for the Tesco, Sky and Lycamobile networks, was at a standstill for a whole day over a software issue affecting users. However O2 and Network provider Ericsson managed to restore services late Thursday. The outage has illustrated potential vulnerabilities in other mobile and digital communications networks which will be difficult to address and will have analysts re-visiting the sector’s potential risks.