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.

Life and Style
The new Windows 10 Start Menu
tech
News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
PROMOTED VIDEO
Arts and Entertainment
Mystery man: Ben Affleck and Rosamund Pike in '‘Gone Girl'
films... by the director David Fincher
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
books(and not a Buzzfeed article in sight)
News
Kim Jong Un gives field guidance during his inspection of the Korean People's Army (KPA) Naval Unit 167
newsSouth Korean reports suggest rumours of a coup were unfounded
News
ebooksAn unforgettable anthology of contemporary reportage
News
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
stoptober... when the patch, gum and cold turkey had all faied
Travel
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
News
people
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

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?