Market volatility rouses conflicting opinion

European markets have been volatile in recent months, reflecting two conflicting interpretations of the current environment. On the one hand, strong global demand has fuelled optimism about the outlook for industrial and cyclical stocks. On the other, fears about the impact of this demand on inflation, and hence interest rates, have hit the financial sector at the same time as concerns over the health of the US sub-prime mortgage and high-yield debt markets. Short-term market moves have broadly been reflecting the ebb and flow of these two viewpoints. As ever, the truth lies somewhere bet...