Why this is merely 'the end of the beginning'

Was that it? many investors may be wondering. Stock markets have rebounded whilst money markets have also calmed down. But the threat of further subprime contagion remains.

Was that it? many investors were wondering by early this week. Equity markets had rebounded, with the Dow Jones gaining 2.3% last week, while the FTSE 100 had posted six straight days of gains. Money markets had also calmed down, with the yield on three-month Treasury bills back to 4.5% as appetite for risk returned. And the US VIX volatility index, a gauge of fear in the markets, receded to 20, having hit 38 a level not seen since the invasion of Iraq in 2003.

But global jitters returned on Tuesday, with Wall Street suffering its worst day in three weeks. And volatility is set to continue. "We are a very long way from normality," as Charles Diebel of Nomura Securities says. The asset-backed commercial paper market, for instance, is still in trouble. According to Ambrose Evans-Pritchard on Telegraph.co.uk, the near-2% jump in the cost of borrowing for US and European firms and the $300bn of debt from leveraged buy-out deals stuck on banks' books are signs that the credit bubble underpinning the market rally of the past 18 months "has definitively burst the world has changed".

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