FOR those who assumed the brace position last week, preparing for a savage correction in global equity markets, it is safe to straighten up — for the time being at least.

Last week’s 6.3% fall in the FTSE 100 has the feel of a correction, not a crash. The damage has been contained in an overinflated commodity bubble, and contagion has not set in.

There are other pockets of overexuberance, but they appear to be localised. There is just not enough bad news about to trigger a collapse in global equity markets. The falling dollar, rising interest rates and inflation are the bogeymen, but these issues have been around for a while.

One of the reasons why Britain’s Footsie got swept up in the sharp global falls is the flipside of becoming an international index that is now heavily skewed to global mining stocks. Within this sector, hedge-fund and commodity traders are exposed to some heavily leveraged positions, and part of the volatility has stemmed from these positions being unwound.

Shares in these stocks have been due a correction for a while, but to bet against a long-term recovery in this asset class — driven by China’s insatiable appetite — would be like standing in front of an Intercity express train.

Shares in sectors other than commodities were less volatile, and fund managers, such as Jupiter, still believe in the “e” in corporate earnings. Shares in FTSE-100 stalwarts like Royal Bank of Scotland and Tesco don’t look expensive and the figures reported last week by BT, the telecom group, reflect some of the underlying confidence in the UK economy.

However there are signs — which are starting to be seen in the spreads on mortgage-backed securitisations — that personal-loan defaults are on the rise. This will be highlighted in the bank-reporting season, but, as with corporate bad debt, the numbers are still at relatively low levels.

There is still too much money around to suggest that we are about to fall off a cliff. Take the Norwegian government as an example. It is generating a staggering $1 billion (£532m) a week of oil revenue. It estimates by 2010 it will have accumulated $450 billion. Norway doesn’t need to build any more roads or infrastructure and will have to invest it somewhere. Even bigger petrodollars are being generated in the Middle East and that is not including the billions that private equity still has at its disposal.

However, the stock market will now tread water for a while. After a 7% rise in the first four months of the year, it was due a pause. While corporate earnings are good, we are probably reaching the high- water mark, but there is still value in certain sectors.

The investment banks are still saying they have a pipeline of work. But this is always a fragile indicator and the tap can be turned off in a moment.

Last week’s fall was a reminder that market volatility is something we are going to have to learn to live with again.

Chips are down

PAUL OTELLINI has had a miserable first year as chief executive of Intel. Last week it got a whole lot worse.

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