Global markets slump: London shares plunge 2% on economic fears as stocks on Wall St slide again despite weak inflation

  • Fears over Brexit, trade wars and global debt levels hit world stock markets
  • FTSE 100 closes down nearly 2% after yesterday's 1.3% drop
  • Dow Jones is 0.9% down after last night's bloodbath of 830 points or 3%
  • That sparked big losses across Asian stock markets overnight
  • Favourable inflation reading in the US saved markets from an even worse sell-off

Stock markets across Europe plunged into the red again today after an International Monetary Fund warning on the global economy caused a massive sell-off of shares on both side of the Atlantic this week.

The FTSE 100 closed 138.8 points or nearly 2 per cent down today at 7,006 - having briefly dipped below 7,000 at one point. That followed a 1.3 per cent drop yesterday. 

Global traders were partially calmed this afternoon by a favourable reading for US inflation but even that could not stop another sell-off. The headline French and German indices were down 1.7 per cent and 1.3 per cent as shares on Wall Street slid again after last night's bloodbath.

The Dow Jones Industrial Average was 0.9 per cent in the red today after closing down 830 points or 3 per cent yesterday, after the IMF report warned of the threat to global stability from Brexit, the US-China trade war and global debt levels. That sparked off big losses across Asian markets overnight.

Volatile It is feared that, against a backdrop of no-deal Brexit, trade war and escalating debt levels, rising interest rates in the US could bring stock markets crashing down. And there are inflation numbers due from the US later this afternoon.

Volatile It is feared that, against a backdrop of no-deal Brexit, trade war and escalating debt levels, rising interest rates in the US could bring stock markets crashing down. And there are inflation numbers due from the US later this afternoon.

Add to this the threat of further rate rises from the US Federal Reserve, and investors watched like hawks inflation data in the States this afternoon. Traders welcomed a lower-than-expected reading for core inflation, which makes an extra rate cut from the Fed unlikely.

That brought shares in London back off their lows of this morning. But the main Wall Street indices are still expected to open in the red at 14.30 BST.

The Footsie sell-off has taken losses since its all-time high in May to 11 per cent, wiping more than £200billion off the value of Britain’s leading companies in a blow to millions of savers with money tied up in the stock market.

Russ Mould, AJ Bell investment director said that a five-day losing streak for stock markets, capped by the worst one-day fall in America’s S&P 500 index since February, 'has investors asking themselves whether this is just the "healthy correction" so beloved of market commentators or the beginning of something more serious'.

'While it is tempting to describe stock markets as volatile, they are really nothing of the sort, at least by the standards of the last 20 years.

'Even allowing for Wednesday’s nasty slide, the S&P 500 has moved by more than 1 per cent from open to close on a daily basis just 34 times in 2018 to date - on track for its quietest year, using this benchmark, since 2006. 

Despite big moves like yesterday's and today's it has been a relatively calm year for the FTSE 100 index.

Despite big moves like yesterday's and today's it has been a relatively calm year for the FTSE 100 index.

The US bull run has coincided with a period of relatively low volatility - the question is, whether more volatility is in the pipeline.

The US bull run has coincided with a period of relatively low volatility - the question is, whether more volatility is in the pipeline.

'And although Wednesday’s 3.3 per cent fall feels frightening, it is only the tenth daily open-to-close movement this year of between 2 per cent and 5 per cent. 

'That pales next to 55 such daily rises or falls during the crisis of 2007 and 2008, or even the 34 such intra-day gyrations of 2011, when US debt was downgraded and the Greek debt crisis began to simmer.

'The UK is similarly becalmed, looking at the FTSE 100 as benchmark, even if we have just had five straight days of open-to-close movements of at least 1 per cent.

'That wobbly streak takes us to 42 daily rises or falls of more than 1 per cent in the year to date. This is more than the 17 seen in the whole of 2017 but still leaves the FTSE 100 on track for its second-quietest year since 2005.' 

Connor Campbell, an analyst at SpreadEx, said: 'To make things even spicier, Thursday’s trading is going to build to the latest US inflation reading this afternoon, a figure that could exacerbate or ease the day’s losses dependent on whether or not it rises month-on-month.'

The Nasdaq was down 4.4 per cent last night, while the S&P 500 index fell 3.3 per cent.  

In Europe, the German market was down 2.2 per cent on Wednesday while the main French benchmark fell 2.1 per cent and Italy slid 1.7 per cent amid ongoing fears over the health of its banks and the government’s plans for a debt-fuelled spending spree.

In the red: Market analysts are expecting the FTSE 100 index to fall further today

In the red: Market analysts are expecting the FTSE 100 index to fall further today

The bloodbath emerged yesterday as the IMF delivered a gloomy assessment of the outlook for the global economy on Wednesday.

As well as sounding the alarm over a no-deal Brexit, and its threat to the stability of the world economy, the Fund warned that trade tensions are growing and that global debt is at a record high of £138trillion.

It is feared that, against this backdrop, rising interest rates in the US could bring stock markets crashing down. 

The IMF, whose autumn meetings with the World Bank are taking place on the Indonesian island of Bali this week, said: ‘Near-term risks to global financial stability have increased somewhat.

‘Looking ahead, clouds appear on the horizon. Support for multilateralism has been waning, a dangerous undercurrent that may undermine confidence in policymakers’ ability to respond to future crises.’

Speaking out: IMF managing director Christine Lagarde called on global leaders to work together to de-escalate trade disputes

Speaking out: IMF managing director Christine Lagarde called on global leaders to work together to de-escalate trade disputes

It said that despite mounting tensions over trade – such as between China and the US – and rising interest rates in parts of the West, ‘global financial markets have remained buoyant and appear complacent’.

It said there could be a sudden sharp tightening in financial conditions that could lead to a ‘broad-based correction’ on the markets.

Turning to Brexit, IMF capital markets director Tobias Adrian warned against the UK leaving without a deal.

‘Financial stability risks are reduced the more prepared the financial sector is and the closer the co-operation between the European and UK authorities,’ he said.

‘The private sector should be getting prepared and the authorities should be engaged with the private sector and make clear what the contingencies are during a hard Brexit.’

And IMF managing director Christine Lagarde called on global leaders to work together to de-escalate trade disputes. She said: ‘We need to join hands to fix and modernise the global trade system, not destroy it.

‘We know that trade has helped transform our world by boosting productivity, spreading new technologies and making products more available.

‘And yet we also know that some workers and some communities are heavily affected by the human cost of disruption whether from technology or trade, or both.’

Analysts said US markets have performed particularly well in recent months, in part because of President Trump’s tax cuts. But there are fears that this could go into reverse as the US Federal Reserve raises interest rates to keep a lid on inflation and stop the economy overheating.

Steen Jakobsen, chief investment officer at Denmark’s Saxo Bank, said: ‘The US market is on its own. 

'So what the IMF is doing is pointing out that, if you exclude the US, the world is already moving to the brink. 

'Whether we go beyond the brink I think is more an issue of how fast the Fed, and how insistent the Fed is, on having higher rates.’ 

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