Tuesday, February 06, 2018

FTSE and European Stock Markets Fall After US and Asia Rout
Asian markets plunged overnight after Dow Jones registered its largest points fall in history

Angela Monaghan, Daniel Hurst and Edward Helmore
Tue 6 Feb 2018 01.17 EST

Carnage in the stock markets. An investor monitors stock prices at a brokerage house in Beijing as shares tumbled in Asia.

Fears of another plunge in Wall Street shares proved unfounded on Tuesday after the Dow Jones shrugged off an initial 500-point drop to post early gains.

It was a volatile open session as shares fell further into the red before investors regained their nerve and the Dow rose 184 points or 0.6% to 24,527.

The gains followed the biggest ever one-day points fall on the US index on Monday, when the Dow plunged by 1,175 as traders bet on interest rate rises.

The FTSE 100 of Britain’s biggest listed companies initially fell by 255 points or 3.5% to 7,079.41 as the turmoil spread to global markets. The index later recovered some of its losses, and was down 138 points or 1.9% at 7,196.

Investors took fright elsewhere in Europe as trading got under way, with markets in Germany, France, Italy and Spain all down by more than 3%.

“The stock market open in the UK and Europe looks about as bad as it can get,” said Jasper Lawler, the head of research at online trading firm London Capital Group. “The bloodbath on Wall Street, which was repeated in Asia has seen confidence evaporate in Europe.”

Falls in Europe followed a near 5% drop in Japan’s benchmark Nikkei 225 index and a 3.3% fall on Australia’s ASX200.

In Japan, the Nikkei 225 index declined by as much as 7% during the day’s trade before a slight recovery to close down 4.7%. The Nikkei’s decline of 1,071.84 points was its largest points fall since 2016.

Maki Sawada, from the investment research and investor services department at Nomura Securities Co, said stocks were being sold in panic after the Wall Street losses.

“The sell-off accelerated in a chain reaction,” she told Kyodo News.

Other markets across Asia also suffered losses. South Korea’s Composite Stock Price Index fell by about 3% in morning trade. Hong Kong’s Hang Seng index plunged 4.9% while the Shanghai Composite index lost 2.2%.

These losses followed the dive in the Dow Jones industrial average on Monday, with investors appearing to react to equity losses and concerns that central banks will soon increase interest rates to rein in inflation. It coincided with the arrival of Jerome Powell as the new chair of the US Federal Reserve.

“This was volatility unleashed,” said Jack Ablin, the chief investment officer at at Cresset Wealth. “It’s partially fear of interest rates, partially this new Fed chairman Jerome Powell, partially the market is overvalued relative to fundamentals.”

While market fear may not be based in any change in economic fundamentals, in its last meeting under chair Janet Yellen, the Federal Reserve indicated it expects inflation pressures to increase through the year.

According to projections released in December, officials expect three rate hikes in 2018 – so long as market conditions remain broadly as they are – but some economists believe the central bank could add another increase at its final meeting of the year.

If the market falls continue they could prove problematic for Donald Trump who has consistently touted record high stock markets as proof that his presidency is boosting the economy.

US stocks have now lost $1tn in value in the first five days of February. However, the White House, responding to the market drop insisted on Monday night that long-term economic fundamentals “remain exceptionally strong”.

Vice President Mike Pence characterised the stock market’s plunge as “simply the ebb and flow of our stock market”.

On Monday, the FTSE 100 suffered its worst single-day slump since Theresa May called the snap election last April.

The index fell 1.3% to 7,345 – having peaked at almost 7,800 last month – extending its longest losing streak since November into a fifth day.

“The era of cheap money is ending, and for markets who got addicted to it, it’s undoubtedly bad news,” said Hussein Sayed, the chief market strategist at currency dealer FXTM.

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