Ding ding! The London stock market is closed, and Britain’s FTSE 100 index has posted its first rise in four sessions.

But it’s a modest recovery.

After heavy losses on Thursday, Friday and Monday, the blue-chip share index has ended today’s session 18.46 points higher at 8026, which is a gain of 0.23%.

UK engineering companies Melrose (+6.6%) and Rolls-Royce (+5.5%) are the top risers.

They’ve followed by technology investor Scottish Mortgage Investment Trust (+4.9%), which is benefitting from the rally in US tech stocks

Just in: economic optimism among Americans has picked up slightly this month, but investors are gloomier (something we’ve seen illustrated in recent days!).

The RealClearMarkets/TIPP Economic Optimism Index has risen by 0.7% this month to 44.5. That leaves it below the historical average of 49.1.

Optimism among investors dropped 2.2% from 53.6 in July to 52.4 in August, while it increased by 3.3% among non-investors, from 39.4 in July to 40.7 in August.

The Six-Month Economic Outlook, which measures how consumers perceive the economy’s prospects in the next six months, rose, but there was a decline in the Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months.

Confidence in the effectiveness of government economic policies also dropped.

Stocks are pushing higher on Wall Street.

The S&P 500 index is now up 1%, or 51 points, at 5,237 points. Top risers include cruise company Royal Caribbean (+8%), drinks company Molson Coors (+7.5%), and Uber (+6.8%).

The Nasdaq is also picking up pace, gaining 0.9%.

Fawad Razaqzada, market analyst at CityIndex, cautions that markets are not out of the woods yet.

With a quieter US economic calendar ahead, there will be fewer new recessionary signals to unsettle traders, and the potential for supportive comments from Federal Reserve officials could ease market pressure.

For now, the greenback has rebounded, helped in part by the stronger ISM services PMI that was released on Monday. Still, in light of the recent events and expectations of a sharper pivot by the Fed than was previously expected, the dollar could weaken more broadly instead of just falling against the yen.”

JPMorgan has also cautioned that one of the factors driving the recent selloff has further to run.

Arindam Sandilya, co-head of global FX strategy at JPMorgan Chase & Co, told Bloomberg TV that the recent unwinding in carry trades has more room to run.

These carry trades involved borrowing cheaply in a currency such as Japan’s yen, and the buying other assets.

Sandilya points out that the yen remains one of the most undervalued currencies, despite rallying since the Bank of Japan raised interest rates last week, undermining the carry trade.

As Sandilya puts it:

“We are not done by any stretch

The carry trade unwind, at least within the speculative investing community, is somewhere between 50%-60% complete.”

Newsflash: trading has begun in New York, and stocks are a little higher after the biggest selloff in almost two years.

The S&P 500 index, which tracks a broad swathe of the market has gained 18 points or 0.36% at the open, while the tech-focused Nasdaq is 0.4% higher.

This is a pretty muted recovery, given the S&P 500 lost 3% on Monday and the Nasdaq ended down 3.4%

The much-storied Dow Jones industrial average has opened up a mere 0.04% or 14 points higher at 38,717 points, having lost 2.6% – or over 1,000 points – on Monday.

This won’t recover much of the estimated $6.4 trillion that has been erased from global stock markets in the last three weeks.

This comes amid warnings that yesterday’s rout may not be the end of this period of volatility.

Strategists at Goldman Sachs have warned that the stock-market correction has not gone far enough.

In a new research note, Goldman have warned that valuations are still high.

Strategists led by Peter Oppenheimer told clients that Wall Street’s price/earnings ratio – a measure of how highly valued shares are – is still high.

They explained:

Has the correction gone far enough? At this stage probably not.

Valuations have moderated but remain elevated, particularly in the US. Even with yesterday’s moves (August 5), the Global equity market is up c.20% since last October lows and the Nasdaq is up 8% this year.

The current PE for the S&P 500 is still above 20x. Valuations have compressed in the sell off, but still only moderately when compared to history. The MSCI AC World has seen its 12m fwd PE move by less than 2 PE points from 18.5x to 16.5x.

Just in: the US trade deficit has shrunk.

The US ran a deficit in goods and services of $73.1bn in June, which is a $1.9bn drop compared with May when it hit $75bn.

The decline was due to exports rising faster than imports.

There was an increase in sales of US capital goods such as civilian aircraft, and higher exports of US fuel, while imports of industrial supplies and materials dropped.

Exports of US goods and service rose by 1.5% in the month to $265.9bn, while imports only increased 0.6% to $339bn.

Overall, the US ran a goods deficit of $97.4bn, which was partly balanced by a $24.2bn surplus in services.

Over in New York, ride-sharing firm Uber has reported better-than-expected financial results.

Uber has posted earnings per share of 47 cents for the second quarter of this year, beating analyst estimates of 31 cents.

Revenues grew 16% to $10.7bn, ahead of the $10.57bn forecast.

And net income jumped 158% in April-June, from $394m in Q2 2023 to $1.015bn.

Despite concerns about a US recession, Uber executives sound rather upbeat.

Uber’s CEO, Dara Khosrowshahi, says:

“Uber’s growth engine continues to hum, delivering our sixth consecutive quarter of trip growth above 20 percent, alongside record profitability.

The Uber consumer has never been stronger--more people are using the platform, and more frequently, than ever before--while drivers and couriers earned a new all-time high of $17.9 billion over the quarter.”

Shares in Uber have jumped 6% in pre-market trading.

After a choppy morning, European stock markets are looking becalmed, as investors look to Wall Street for inspiration.

Here’s the state of play, after the initiall recovery from yesterday’s losses fizzled out.

• The UK FTSE 100: up 5 points or 0.06% at 8013 points

• Germany’s DAX: up 6 points or 0.04% at 17,345 points

• France’s CAC: down 19 points or 0.27% at 7,129 points

• Spain’s IBEX: down 41 points or 0.4% at 10,382 points

• Italy’s FTSE MIB: down 30 points or 0.1% at 31,266 points

We’re still expecting Wall Street to open higher; the futures market now has the Dow Jones industrial average up 0.8% or so.

The pound remains at its lowest level in over a month against the US dollar, at $1.2698.

Luke Bartholomew, deputy chief economist at abrdn, says the current market volatility is being driven by three macroeconomic drivers.

First, weak US data reigniting recession fears. Last week’s labour market report was soft across the board, with unemployment now rising in a manner historically consistent with a recession. However, the services ISM rebounded to 51.4 in July from 48.8 previously and the PMI equivalent was even firmer at 55. And the Senior Loan Officers Survey pointed to stabilising credit conditions, although without any loosening from the sizeable tightening over the last few years. More broadly, relatively few economic data are consistent with a recession. Consumer spending and business investment were both solid through Q2, and the Atlanta Fed nowcast is tracking a 2.5% gain in Q3 GDP. Indeed, the NBER recession indictors are signalling few signs of alarm. On balance, then, while we take the deterioration in the US labour market very seriously, we don’t think the economy is in a recession.

The second, and related, driver is the sense that the Fed might be falling behind the curve in responding to weak US data. If the Fed had been meeting this week rather than last, it may well have cut rates. But this does not mean that an unscheduled meeting to announce a rate cut now is likely. In fact, such a move risks heightening volatility by creating a perception of panic. Instead, policymakers will probably try to use verbal interventions to reassure markets. For example, Chicago Fed President Austan Goolsbee was very much looking to calm nerves in comments yesterday, arguing that the employment data was just “one report”, and that the economy does not look to be in recession. We expect similar messages from other Fed speakers in due course. But what is important to stress is that the path to a soft-landing runs through rate cuts. There is a vital distinction between rate cuts that are delivered pre-emptively to stop a slowdown, and reactive rate cuts that come in response to a slowdown. The market needs reassurance the Fed is ready to deliver pre-emptive easing and will not wait until the economy is clearly in recession before cutting.

For now, we continue to forecast a 25bps cut in September, along with a clear path towards further easing this year and next. But another weak labour market report or little let-up in market stress could easily tip the Fed towards delivering a more rapid cutting cycle. We expect the Bank of England and European Central Bank to also extend their rate cutting cycles later this year, although most recent market pricing probably exaggerates the speed and scale of those cuts.

The third driver of volatility is the unwind of the yen carry trade. The Bank of Japan (BoJ) announced more monetary tightening than expected last week, causing a sharp appreciation in the yen. As the yen has been a preferred funding currency for the global carry trade, this appreciation caused a significant positioning unwind, begetting a positive feedback loop of yen appreciation. The BoJ will probably be somewhat chastened by the size of the moves in equity and currency markets. Given that the progress on underlying inflation in Japan is far from complete, it is not obvious that Japan needs a material tightening of financial conditions. So, while the unwind of the carry trade might have further to run, and we expect further tightening from the BoJ, policy rhetoric may now soften and the next hike could be delayed until much later into the year.”:

So much for turnaround Tuesday!

After a positive start, European stock markets have fallen into the red again.

The feeling of optimism following the sharp rally in Tokyo overnight has not lasted for long.

In London, the UK’s FTSE 100 share index is down 35 points, or 0.45%, at 7972 points – so still higher than its low point yesterday.

Germany’s DAX has lost all its earlier gains, now down 0.3%, while France’s CAC has lost another 0.6%.

Reminder, that follows a strong recovery in Asia after Monday’s rout, with Japan’s Nikkei surging around 10% – its biggest one-day jump since the financial crisis of 2008.

In less encouraging news, eurozone retail sales have fallen again.

Reail sales in the euro area dropped by 0.3% in June, new data shows, missing forecasts for a 0.2% rise.

Analysts at ING say this is “more sluggish news about the eurozone economy” as consumers postponed the retail recovery again.

Newsflash: growth accelerated in the UK construction sector last month, at the fastest pace in 26 months.

Building firms reported “much faster increases” in both activity and new orders in July, according to the latest poll of purchasing managers by S&P Global.

Thsi lifted the Construction Purchasing Managers’ Index up to 55.3 in July from 52.2 in June, showing faster growth (50 points = stagnation).

That’s the fastest rate of expansion since May 2022.

S&P Global reports that all three categories of construction grew last month – civil engineering expanded fastest, followed by commercial work and then housebuilding.

A pick-up in housebuilding should be welcome news for the new government, as it aims to build 1.5m new homes this parliament.

Andrew Harker, economics director at S&P Global Market Intelligence, says:

“The election-related slowdown in growth seen in June proved to be temporary, with the pace of expansion roaring ahead in July. Firms saw the strongest increases in new orders and activity since 2022 as paused projects were released amid reports of improved customer confidence.

The strength of demand moved the sector closer to capacity, bringing a recent period of improving supplier performance to an end. There were also signs of inflationary pressures picking up, something that will need to be watched closely if demand strength continues in the months ahead.”

Thames, Yorkshire and Northumbrian Water will be fined a record £168m between them for a “catalogue of failure” over illegal sewage discharges into rivers and the sea after the industry regulator’s biggest ever investigation.

The water regulator for England and Wales, Ofwat, has proposed penalties of £104m for Thames, £47m for Yorkshire and £17m for Northumbrian for failing to manage their wastewater treatment works and networks, including their operation of storm overflows. It said it was the first of more crackdowns to come.

Australia’s borrowers have been spared an interest rate rise as the Reserve Bank waits for more proof of a sustained drop in inflation and clearer signs of the severity of the financial markets tailspin before deciding its next move.

The central bank on Tuesday left its cash rate unchanged at 4.35% for a sixth meeting in a row. The decision was widely expected by economists after June quarter inflation largely met RBA’s forecasts and market turmoil began spreading around the world.

The RBA said inflation “in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.

“Data have reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out,” it said, maintaining a stance it has had all year.

Matt Simpson, senior market analyst at City Index in Brisbane, cautions that there may be more turmoil ahead.

“The Nikkei’s enjoying a decent retracement against Monday’s plunge, as comments from the Fed’s (Mary) Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week.

But this is not exactly a risk-on rally. And we’re not yet sure if this is just a breather between water-boardings or there is more pain to follow.

Mary Daly, the president of the San Francisco Federal Reserve, said last night she expects US interest rates will be cut later this year.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

What a difference a day makes! Some 24 hour ago, the financial markets were in retreat – now, they’re bouncing back.

After its biggest crash since 1987 on Monday, Japan’s Nikkei 225 index has rebounded strongly today. The Nikkei has just closed around 10% higher, after a day of strong buying activity, recovering much of yesterday’s 12.4% slump.

The Nikkei ended the day up 3,217 points, or 10.3%, at 34,675 point..

That’s a record points gain, but below its biggest ever percentage gain of 14.2% in October 2008.

South Korea’s KOSPI index is 3.7% higher, while Australia’s S&P/ASX 200 is up a modest 0.4%.

Jim Reid, strategist at Deutsche Bank, calls it “a turbocharged turnaround Tuesday in Asia”, telling clients jovially:

On certain measures, yesterday was the wildest day of my 29-year career and will make the rides I’m going on at Disney Land Paris this time next week seem a bit like the toddler rides at Peppa Pig World by comparison.

The future market predict indicate European markets, and Wall Street, will recover ground today too.

The UK’s FTSE 100 index is being called up around 1%, after dropping 2% yesterday.

The recent stock wobble has been blamed on several factors, including concerns that a US recession is approaching. Those fears were eased somewhat by strong service sector data yesterday, showing a rebound in new orders.

Another factor is the end of the cheap money era, after the Bank of Japan lifted interest rates last week, squeezing the ‘yen carry trade’ under which investors borrowed yen cheaply to spend on other assets.

Stephen Innes, managing partner at SPI Asset Management, says several factors – including rising volatility – were to blame:

While it’s easy to blame the usual suspect—the carry trade circus—a closer look reveals that there isn’t just one villain in this story. Given the economic climate, the yen carry and other leveraged bets were indeed skating on thin ice. The Bank of Japan might have missed an opportunity to pre-signal a rate hike, and the Fed’s decision to hold rates steady didn’t exactly calm the waters. And let’s not even start on the overinflated tech bubble on Wall Street—a ticking time bomb waiting to go off.

But honestly, we’ve witnessed the perfect storm of market dysfunctions, glaringly apparent during those wild VIX surges when the market’s capacity to manage risk vanished. This was more than just a few bad calls or risky bets going south—imagine a game of hot potato with high-stakes assets, and suddenly, everyone’s hands are full. The higher the VIX, the fewer takers there are for another toss, leading to a market scenario that’s more about dodging than catching.

Chicago Fed Bank president Austan Goolsbee made an effort to calm markets yesterday, telling CNBC that it is “not looking yet like recession”, despite Friday’s slowdown in job creation.

That didn’t prevent Wall Street posting its worst drop in almost two years last night, though:

Today’s calm could be due to a stabilisation in the yen. It is trading around ¥145/$ – having surged from ¥160/$ in early July to ¥141/$ yesterday.

Traders will be looking for signs that policymakers will respond to concerns over economic growth, such as by cutting US interest rates.

The agenda

• 7am BST: German factory orders for June 7amabrdn

• 8.30am BST: Eurozone construction PMI for July

• 9.30am BST: UK construction PMI for July

• 1.30pm BST: US trade data for June

• 3.10pm BST: RealClearMarkets/TIPP index of US Economic Optimism