Analysis: Markets in a muddle as investors blow both hot and cold

It can sometimes be a mistake to look for too much logic in what happens on the markets. Chinese growth figures this morning, showing the weakest growth in a quarter of a century last year, might have been expected to send markets lower. Instead there has been something of a recovery this morning, ostensibly driven in part by the hope that the Chinese authorities might engage in yet more stimulus. Something of a revival in oil prices has also helped and even beleaguered mining shares are up a bit.

We are now in a period of uncertainty when markets are largely being driven by whether the mood of the day is, what is called in the jargon, “ risk on”, or “ risk off.” Rather than being driven by specific factors , the prices of various assets are moving in tandem, either higher or lower.

So far this year the “off” switch has been predominant, leading to cash moving out of equities and into safer havens such as cash and “safer” government bonds. Shares and currencies in emerging market have been sold heavily, and oil has collapsed to extraordinary lows, along with commodity prices.

Today the mood is the opposite.Emerging market shares are having their best day in two months – recording a rise of 1.6 per cent on average at the moment – oil prices have rebounded a bit, despite more warnings of a supply glut , and even Chinese stocks rallied. Part of the reason seems to be relief that the Chinese figures were not worse.

The official data showed growth of 6.9 per cent last year, down from 7.3 per cent in2014. It supported the view that the Chinese economy was slowing, but did not prove that the economy was heading for real difficulty. Analysts remain divided on this, with some scepticism about the reliability of the official data. There are two strong competing arguments driving the market now – those feeling it will work out all right, and those arguing that we are heading for a period of very slow economic growth. “ Two views make a market” as the old saying goes, so we are likely to see the risk switch turning on and off a good bit more in the weeks ahead. This one will run for some time.