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.

Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' embraces politics, religion, warfare, courage, love and loyalty, say creators
Sport
Sergio Romero saves Wesley Sneijder's penalty
world cup 2014But after defeating the Dutch, Lionel Messi and Argentina will walk out at the Maracana on Sunday as underdogs against Germany
Sport
Scoreboard at the end of the semi-final World Cup match between Brazil and Germany at The Mineirao Stadium in Belo Horizonte
Sport
'Saddest man in Brazil' takes defeat with good grace, handing replica trophy to German fans
PROMOTED VIDEO
News
peopleThe Game of Thrones author said speculation about his health and death was 'offensive'
Arts and Entertainment
Martin Freeman and Lauren O'Neil in Jamie Lloyd's Richard III
theatreReview: The monarch's malign magnetism and diabolic effrontery aren’t felt
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Sport
Alexis Sanchez and apparently his barber Carlos Moles in Barcelona today
football
Arts and Entertainment
Miley Cyrus has her magic LSD brain stolen in this crazy video produced with The Flaming Lips
video
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
In his own words: Oscar Wilde in 1882
theatreNew play by the Oscar Wilde's grandson reveals what the Irish wit said at his trials - and what they reveal about the man
News
people
Arts and Entertainment
Unless films such as Guardians of the Galaxy, pictured, can buck the trend, this summer could be the first in 13 years that not a single Hollywood blockbuster takes $300m
filmWith US films earning record-breaking amounts at the Chinese box office, Hollywood is more than happy to take its lead from its new-found Asian audience
News
The garage was up for sale in Canning Place Mews for £500,000
newsGarage for sale for £500,000
Life and Style
tech
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

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Financial Planning Manager, Qual Accountant, £380

£300 - £380 per day: Orgtel: Financial Planning Manager, Banking , London, £30...

Business Analyst - Financial Services, Trading Systems, Agile

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fina...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil