The FTSE 100’s surge towards all-time highs was brought to a spectacular halt today as panicking investors dumped shares in a global sell-off.
London’s blue-chip benchmark has risen in every session bar one since the end of April in a seemingly inexorable rise towards the 6930 record hit at the height of the dot-com boom in 1999.
But City dealing rooms took fright today over growing calls among US Federal Reserve rate-setters, led by Ben Bernanke, to scale back the money-printing efforts which have helped fuel the global share rally. Some pressed to ease back quantitative easing as soon as next month, according minutes of its latest meeting.
The Footsie sank 133.20 points, or 1.9 per cent, to 6706.70 — wiping £34 billion off the index in a torrid session for equities. Japan’s Nikkei Average, previously bolstered by prime minister Shinzo Abe’s “shock and awe” efforts to kick-start the economy, suffered even heavier damage after an unexpected decline in Chinese manufacturing output in May. The index sank 7.3 per cent in the worst sell-off since the nation was struck by the tsunami in March 2011.
IG Index analyst Chris Beauchamp called the sell-off an “undignified rush to the exit”. He said: “The mood has switched from greedy to fearful.” The FTSE’s mining contingent was among the worst-hit amid fears over waning Chinese demand for commodities, with all but two of the top flight’s constituents losing ground.
European markets were also hit as Germany’s Dax fell 2.6 per cent and France’s CAC 40 per cent lost 2.4 per cent. Spanish and Italian bourses were down 2.1 per cent and 2.7 per cent respectively as investors sought safe havens, pushing down yields on UK, US and German sovereign debt.
Even after today’s sell-off, the Nikkei remains 40 per cent higher in 2013 and London’s benchmark 13 per cent ahead. “Even if this does turn into a sustained down move over a period of a week or two, the fundamental narrative of central bank easing and improving economic data should reassert itself,” Beauchamp added.
The sell-off came against the backdrop of a contraction for Germany’s private sector in May signalling stagnation in the second quarter of the year. France’s decline also continued over the month according to financial data provider Markit. The UK’s growth of 0.3 per cent in the first quarter of 2013 was left unrevised today.