FTSE 100 tumbles after worst day for US stocks in more than six years

As it happened: global markets suffer massive sell-off on inflation fears

FTSE 100 crashes as global markets plunge on inflation fears

The FTSE 100 fell sharply on Tuesday, following dramatic sell-offs across the US and Asia, sparked by inflation fears after strong US jobs data triggered a surge in bond yields.

The UK’s benchmark stock index tumbled 3.5 per cent shortly after the market open before recovering somewhat throughout the day, mirroring similar moves across France, Germany and other European markets.

Early on Tuesday, Japan’s Nikkei 225 tumbled 4.7 per cent, marking its worst fall since November 2016 and taking it to a four-month low.

On Monday, the US benchmark S&P 500 fell by more than 4 per cent and the Dow Jones Industrial Average lost 4.6 per cent. Those represented the largest percentage drops since August 2011, but those indices largely regained their footing somewhat on Tuesday.

Traders generally agree that the primary trigger for the global stock rout was a sharp rise in US bond yields after data out of the US on Friday showed wages increasing at the fastest pace since 2009.

That in turn raised the prospect of higher inflation and, as a result, the possibility of higher interest rates.

Here's a look at how the trading day unfolded:

Key Points

• FTSE 100 falls sharply
• Nikkei closes down 4.7 per cent
• Strategists and analysts from across the City react
• 'Fear index' spikes
• Dow Jones takes biggest hit since 2011 

[6 February 2018 10:07 · Josie Cox]

Holger Schmieding and Kallum Pickering, two economists at Berenberg bank don’t see the sell-off as a game-changer but, instead, a ‘return to normal’:

“Markets have enjoyed a sweet spot in the past year or so. Strengthening economic data that did not quite prompt central banks into putting on the brakes encouraged an equities rally while keeping sovereign bond yields lower than one would normally expect given the market’s expectation for GDP growth and inflation.

“The rise in bond yields reflects a return to normal for economic growth and inflation. And the softer equity markets, which for now reflects no more than a correction of the little excess on the upside in recent months, need not change the economic or central banking calculus much.”

[6 February 2018 11:03 · Josie Cox]

A ‘good and healthy’ reminder

“Perhaps we have forgotten that markets always have been dynamic, occasionally volatile, and brutal,” says Kames Capital’s chief investment officer, Stephen Jones.

“The last three days has reminded us of these fundamental truths after too long a period of calm,” he adds.

He says that, despite the size of the moves, “there is nothing of concern on fundamentals”.

“Data from, and prospects for economies are good. […] 2018 was not going to be a repeat of 2017 ... its good and healthy that the market has made this clear early on,” he says.

[6 February 2018 12:08 · Josie Cox]

More upside ahead

Markets might look messy today, but over the longer run there may well be more upside, say Seema Shah, global investment strategist at Principal Global Investors.

“The underlying strength of the economy warrants further gains in risk assets. Investors should also keep in mind that periodic setbacks are likely during late-cycle stages - although bouts of volatility like the one we have just seen will severely test investors’ resolve.”

[6 February 2018 13:19 · Josie Cox]

Just ‘a bit of a shake out’

Guy Foster, head of research at Brewin Dolphin, has become the latest to play down the severity of Tuesday’s market sell-off and remind us that this shouldn’t come as a shock.

“Today we have seen a bit of a shake-out in the equity markets around the world. Whilst it may feel traumatic, it was not in many ways surprising,” he says.

“We expected volatility to pick up, as central bankers, who had hitherto been smoothing the path for investors with unnatural amounts of liquidity, have been trying to quietly withdraw their support,” he adds.

[6 February 2018 14:06 · Josie Cox]

‘Ease off the accelerator but stay away from the brake’

Karen Ward, chief market strategist for the UK and Europe at JP Morgan Asset Management, has said that she’s not convinced that the recent moves “represent a major change of economic or market direction”.

Instead, she says, they likely represent “a normal shake-out that represents some portfolio re-adjustment and profit-taking after a peculiarly strong start to the year”.

“Some market volatility is actually quite normal; since 1980, the average intra-year decline for the S&P 500 has been 13.8 per cent whilst annual returns were positive in 29 of those 38 calendar years,” she says.

“Unless you believe inflation is really set to return in a meaningful fashion then you should be confident that central banks will ease off the accelerator but stay away from the brake. In which case, the outlook for risk assets remains positive.”

[6 February 2018 14:41 · Josie Cox]

US market slides again

It looks like the US stock market is in for another turbulent session.

Shortly after the open, the S&P is down around 1 per cent, roughly in line with the Nadaq index. The Dow is down around 200 points, according to Reuters.

[6 February 2018 14:42 · Josie Cox]

Bitcoin’s fall continues

It’s also proving to be a tough day for bitcoin believers.

Earlier the cryptocurrency briefly slid below $6,000 to its lowest point so far this year. It’s recent sell-off has now seen it lose more than half its value.

[6 February 2018 14:54 · Josie Cox]

And we’re back up…

After that initial sell-off it looks like the Dow has recovered its footing a bit. It’s up 0.6 per cent. The other major US indices have recovered slightly too.

Sven Balzer, head of investment strategy at Coutts, says that “global economic growth remains strong and there are no signs of a US recession, which usually heralds a wider sell-off.