Global markets bounced back yesterday (Friday) as investors brushed off the pain of Wednesday's brutal sell-off amid hopes of further stimulus from the European Central Bank.
The FTSE 100 posted its first weekly gain of 2016 - a 1.65pc rise - as a respite in the oil price slump lifted energy majors from multi-year lows.
Britain's benchmark index has suffered its worst new year start on record due to persistent oil price volatility and concerns about a China-led global economic slowdown. Despite wiping out Wednesday's losses and closing at its highest level in over a week (5,900.01), the blue-chip index remains 6pc in the red so far this year.
The news came as oil enjoyed its first real bounce of the year, after ECB president Mario Draghi suggested the central bank could ease its monetary policy at its March meeting, triggering a rally in commodity prices. Brent crude climbed by as much as 8.6pc in intraday trade to $31.52 a barrel.
Traders said the oil price was also boosted by the cold snap across the US and Europe that has boosted energy demand. Rebecca O'Keeffe, of Interactive Investor, suggested the oil price "may have defined a bottom this week" after the bearish market "overreacted" to the lifting of sanctions on Iran at the start of the week.
The Draghi effect had also helped boost Asian stock markets overnight, with Japan's Nikkei recording gains of 5.9pc, and the Shanghai composite
index closing 1.3pc higher.
European shares took their lead from Asia, extending gains from the previous trading session to record their biggest rally since October. The CAC in Paris advanced 3.1pc, while the German DAX rose 2pc.
It has been a rollercoaster week for investors, during which 40 global stock markets, including the FTSE 100, crashed into bear market territory. The wildly volatile start to 2016 has wiped nearly $8 trillion off global stock markets, Bank of America Merrill Lynch said yesterday.
Chris Beauchamp, of IG, said: "With all the negativity that drove the downward moves in the first half of the month, it is not surprising to see an upward surge that has been as remarkable as the sell-off preceding it."
Although bulls stormed global
markets yesterday, investor sentiment remains fragile. Speaking at Davos, Larry Fink, of BlackRock, cautioned the bounce "still doesn't feel like we've hit the bottom".
The climb in oil, which was echoed by a rise in the price of copper and iron ore, came despite the threat of rating downgrades for more than 120 of the world's largest energy companies. Moody's warned oil and mining majors that their rating could be cut, as it placed a raft of companies on review.
Jefferies, meanwhile, warned that persistent volatility in oil prices could also wreak havoc on British and European banks, costing billions of pounds, if companies could not pay back loans.