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
A Brazilian wandering spider
news

World's most lethal spider found under a bunch of bananas

News
people
Arts and Entertainment
Tim Wonnacott dancing the pasadoble
TVStrictly Come Dancing The Result
Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
PROMOTED VIDEO
Voices
Sol Campbell near his home in Chelsea
voices
News
<p>Jonathan Ross</p>
<p>Jonathan Ross (or Wossy, as he’s affectionately known) has been on television and radio for an extraordinarily long time, working on a seat in the pantheon of British presenters. Hosting Friday Night with Jonathan Ross for nine years, Ross has been in everything from the video game Fable to Phineas and Ferb. So it’s probably not so surprising that Ross studied at Southampton College of Art (since rebranded Southampton Solent), a university known nowadays for its media production courses.</p>
<p>However, after leaving Solent, Ross studied History at the School of Slavonic and East European Studies, now part of the UCL, a move that was somewhat out of keeping with the rest of his career. Ross was made a fellow of the school in 2006 in recognition of his services to broadcasting.</p>
TV

Rumours that the star wants to move on to pastures new

News
Kimi the fox cub
newsBurberry under fire from animal rights group - and their star, Kimi
Arts and Entertainment
filmsIt's nearly a wrap on Star Wars: Episode 7, producer reveals
Life and Style
fashion
Arts and Entertainment
Russell Brand labelled 'left-wing commie scum' by Fox News
TV
News
ebooksAn unforgettable anthology of contemporary reportage
News
Paul Nuttall, left, is seen as one of Ukip's key weapons in selling the party to the North of England
i100
Arts and Entertainment
BBC's Antiques Roadshow uncovers a TIE fighter pilot helmet from the 1977 Star Wars film, valuing it at £50,000
TV

TV presenter Fiona Bruce seemed a bit startled by the find during the filming of Antiques Roadshow

News
people

Comedian says he 'never laughed as hard as I have writing with Rik'

News
i100
Life and Style
tech
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

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

IT Operations Manager - London - £55,000

£50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...

Banking Solicitor NQ+

Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past