Markets plunge in fear of end to US money-printing - Business News - Business - The Independent

Markets plunge in fear of end to US money-printing

Global sell-off on Fed move wipes out the last of the gains made by London's benchmark FTSE 100 this year

New York

Traders and investors around the world began selling stocks and
bonds yesterday, sucking money out of global markets after the US
Federal Reserve signalled that it could begin rolling back its
bond-buying programme later this year and end it altogether around
next summer.

The prospect sent investors rushing for the exit at such speed that, in New York, both the S&P 500 and the Dow Jones Industrial Average recorded their worst daily declines since 2011. The Dow fell by 353.87 points, down 2.3 per cent, to 14,758.3, while the S&P 500 dropped by 2.5 per cent to 1,588.19.

Hours earlier, in London, the FTSE 100 sank to its lowest close since mid-January, ending 3 per cent in the red at 6159.51. The index has now seen virtually all its gains for the year wiped out less than a month after it was closing in on its all-time high of 6930. In Europe, Germany's DAX index was down more then 3 per cent, while in Paris, the CAC 40 fared even worse, slumping by 3.7 per cent.

The global market rout came after a 200-point drop in the Dow on Wednesday, which was triggered by comments from the Fed chairman Ben Bernanke that if economic data in the US continued to show signs of improvement, the central bank could begin cutting the size of its stimulus programme later this year.

The programme – under which the Fed buys $85bn worth of mortgage and government bonds every month – could then end altogether around the middle of next year, he said.

In its latest forecasts, meanwhile, the Fed also projected a decline in US unemployment to between 6.5 per cent and 6.8 per cent by the end of 2014, earlier than perviously anticipated. However, the Fed's key interest rate is unlikely to rise any time soon.

While the timeline for the reversal of the bond buying programme could change depending on the economic outlook, Mr Bernanke's comments gave investors the clearest indication yet of the thinking inside the central bank.

That triggered a panic, amid concerns about the outlook for the global economy once the Fed yanks away the crutches. Feeding the fears was overnight data from China that showed a decline in manufacturing output.

On the bond markets, the selling drove up the UK Government's cost of borrowing to its highest level for more than a year as investors exited sovereign debt across the board.

Yields on the Government's benchmark 10-year gilt jumped 18 basis points at one stage to 2.32 per cent, the highest since March 2012 – having already risen from a recent low of 1.6 per cent at the beginning of May.

One dealer said gilt trades had hit double their usual volume on a frenetic day of selling: "The moves in the market are akin to what you would expect if there was a surprise interest rate hike."

Rising gilt yields are usually associated with recovery as the prospect of interest rate rises draws nearer. But the turmoil underlines the risks involved in exiting five years of exceptional monetary stimulus by central banks around the world.

The poor news from China, where faltering demand depressed factory output in June to a nine-month low, also combined with a stronger dollar to drag oil prices lower.

Gold, which has been fuelled by money printing and rock-bottom interest rates, sank nearly 5 per cent to $1,285.90 at one stage – the weakest in nearly three years.

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week