After a Shaky Shares Week, E 5 Moves You Need to Make; Stock Exchanges at Home and Abroad Were in Turmoil in Recent Days. What Does the Markets Mayhem Mean for Your Pocket?

The Mail on Sunday (London, England), February 11, 2018 | Go to article overview

After a Shaky Shares Week, E 5 Moves You Need to Make; Stock Exchanges at Home and Abroad Were in Turmoil in Recent Days. What Does the Markets Mayhem Mean for Your Pocket?


Byline: YOUR MONEY BILL TYSON

Crash or correction? That was the big question stalking stock markets this week after the biggest fall since 2016 wiped $5tn off global share values. The turmoil continued all week as markets bounced back on Wednesday, only to plunge again on Thursday and end the week in a state of upheaval.

'Monday registered the biggest one-day surge in stock market volatility on record amid the largest drop for the S&P [US shares index] in six years,' said Simon Barry, Ulster Bank chief economist.

'However, one way to view the recent price action in stocks is that a market which has been going up for almost nine years lost eight weeks of gains, leaving it still higher than where it was in mid-November. Further volatility would not be a surprise, though we think major economic impacts will be avoided.' The stock exchange tension was exacerbated by new trigger-happy share dealing systems that react to volatility by selling, which makes it considerably worse.

Shares had risen to record highs because we appeared to have entered an era of lower interest rates, which will help companies grow faster and drive more money into shares as bank deposit rates dwindled to practically zilch.

Despite the market ructions, global economies are still forging ahead strongly and so too are company profits.

But shareholders got jumpy this week because they thought interest rate rises might come sooner than expected, further reining in profits, and wages also spiked in the US, which would have the same effect. A wage deal in Germany also saw annual pay hikes of 4% agreed for half a million German metal and electrical workers.

Wage increases also push up inflation, putting pressure on interest rates.

Yet in Europe, rates still aren't expected to rise before 2019 and even after that the rise will be gradual over several years.

'Interest rates could go up by 1%, maybe 1.5%. A lot depends on how things play out in the US,' said Alan McQuaid, economist with Merrion Capital.

European Central Bank boss Mario Draghi and his team are due to retire towards the end of 2019, and rate increases may well be staved off until then, so that he can leave on a positive note, with an intact reputation for successfully stoking up the EU economy with cheap money.

Mr McQuaid said the EU economy remained strong despite the upheaval, and its prospects had been boosted by a new deal that has brought political stability to Germany.

In fact, even during the shares bloodbath, the ECB this week upgraded its growth forecasts for the eurozone once again.

So what does all this mayhem mean to our pockets? Here are five takeaways:

ASK FOR A 1 PAY RISE The shares slump was triggered by long-overdue wage rises as we reach full employment - that is, there's some kind of work available for everyone who wants it.

Wages here are expected to rise by 2-3% this year, although some in-demand workers are likely to get as much as 8%.

If you're one of them, don't get left out in the cold. …

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