FTSE falls further after early gain

Friday 17 October 2014

The FTSE 100 Index slumped by another 2% yesterday as fears over the global economy triggered another bleak session for volatile stock markets.

London's blue-chip index lost £46 billion in value yesterday and is now at its lowest level since June 2013 following today's latest sharp sell-off.

There were initially hopes for a steadier session following an early rise of 70 points but the gains were short-lived as investors eyed the prospect of a weak start to trading on Wall Street. The correction for the FTSE 100 Index since its near record high of 6900 at the start of last month now stands at 12% to just above 6000. This includes yesterday's heaviest one-day fall in 16 months with a decline of 2.8%.

The current slump has come in the wake of poor US economic data and political uncertainty in Greece, prompting worries about its continuing adherence to an unpopular bailout austerity plan. It added to growing anxiety in recent weeks that the eurozone may be heading back into recession with its largest economy, Germany, reporting a fall in exports and slashing growth forecasts.

Michael Hewson, chief market analyst at CMC Markets, said the end of monetary stimulus by the US Federal Reserve had provided a reality check for markets.

He said: "As the monetary morphine has started to wear off the patient has come to realise that a lot of the old problems still remain, and yesterday's poor US data helped trigger a rather extreme reaction in not only the stock markets but bond markets too, as complacent investors rushed to hedge themselves. In essence, investors are asking the question with respect to the recent recovery about whether this is as good as it gets, which rather explains the slump in the oil price, bond yields and stock markets."

The oil price has continued to sag on fears over weakening demand, with Brent crude heading towards $83 a barrel. Markets in Paris and Frankfurt were also down by around 2%, while there were heavy losses in Spain and Italy.

Forex.com research director Kathleen Brooks said: "There isn't one thing that is weighing on the markets; instead it appears to be an accumulation of fears, and one of those is the prospect of a second sovereign debt crisis in the eurozone."

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: " Without doubt this is a difficult time for markets. Indeed, it may even represent a turning point as expectations for global growth are re-evaluated and reset. By the same token, corrections are generally healthy pauses for thought and it can be tempting to be caught up with the inevitable hyperbole market falls bring. Panic and carnage may have adequately described market events in 1987, but for the moment little but sentiment has changed over the last few days."