FTSE 100 Falls Almost 200 Points After Dow Jones' Huge Single-Day Drop

'Bloodbath on Wall Street.'
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The FTSE 100 closed lower by 2.6% as global markets shuddered following the biggest one-day fall in the Dow Jones in six years.

The stock market of the UK’s biggest companies fell 193.58 points to end the day at 7,141.4 points.

Every share on the FTSE 100 index was down, as traders hunker down ahead of the Wall Street re-opening at 2.30pm UK time.

But US stock markets recovered on Tuesday, ending a day of massive fluctuations on a high note, rebounding after recent steep losses.

The Dow Jones Industrial Average closed up 2.3%, while the Nasdaq hit 2.1% and the S&P 500 rose 1.7%.

World stock markets nosedived for a fourth day running on Tuesday, having seen $4 trillion wiped off from what just eight days ago had been record high values.

Asian and Australian stock markets also tumbled overnight.

Across Europe, Germany’s Dax plummeted by 2.7% and the Cac 40 in France was languishing 2.1% lower.

Falls in Europe followed a brutal overnight sell-off in Asia and on Wall Street, where the Dow Jones Industrial Average and the S&P 500 dropped 4.6% and 4.1% respectively.

Tokyo’s Nikkei 225 Day closed down 4.7%, while the Hong Kong’s Hang Seng Index plunged 5% lower.

The falls follow deep losses during Monday’s session when more than £27 billion was wiped off the value of London’s blue-chip stocks.

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Connor Campbell, financial analyst at Spreadex, said: “The only hope for the markets at the moment is that investors suddenly decide that the sell-off has been a bit overdone – though in a way it is fitting, matching the astonishing, record-breaking recent rise of the global indices with an equally astounding, heart-stopping drop.

“Admittedly the Bank of England could go some way to allaying investors’ fears of rising interest rates on Thursday, if (governor) Mark Carney issues a more dovish statement than forecast.”

On Monday, US stocks plunged during a highly volatile day of Wall Street trading with the Dow Jones falling by more than 1,150 points, erasing all the gains it has made for the year.

At the end of a rollercoaster day, the Dow Jones Industrial Average fell by 1,175.21 points, or 4.6%, to 24,345.75.

At one point, the Dow fell 6.3% or 1,597 points, as it breached both the 25,000 and 24,000 levels during trading.

- All the benchmark European stock indexes retreated
- The German DAX falls 2.4%
- FTSE 100 drops 2.3%
- U.S. stock index futures are volatile
How low can it go?https://t.co/StYnUpMzSB pic.twitter.com/Rj38IKU2Gk

— Bloomberg (@business) February 6, 2018

FTSE 100 set to open down around 200 points - pretty bad - but was 350 points 2hrs ago

— Jasper Lawler (@jasperlawler) February 6, 2018

Things didn't get any better overnight in the Dow Jones - futures crashed again as much as cash index #DownJones pic.twitter.com/HhilrBKsWK

— Jasper Lawler (@jasperlawler) February 6, 2018

Erin Gibbs, portfolio manager for S&P Global Market Intelligence, told the BBC: “This isn’t a collapse of the economy. This is concern that the economy is actually doing much better than expected and so we need to re-evaluate.”

Away from the top tier, the FTSE 250 Index was also suffering, dropping more than 2% or 413.41 points to 19,279.74.

Jasper Lawler, head of research at London Capital Group, said there were “a lot of wide-eyed looks” on the trading floors.

He said: “The bloodbath on Wall Street has washed away all the confidence in European markets. The indiscriminate selling will probably continue until Wall Street finds its first bottom.

“The FTSE 100 was off its lows of the day half an hour into the trading session, down around 150 points from yesterday’s close.

“For what it’s worth, sentiment has improved from overnight pricing which at one point pointed to a 350-point opening loss for the FTSE 100.”

Meanwhile, Japan’s Nikkei dived 4.7%, its worst fall since November 2016, to four-month lows.

MSCI’s broadest index of Asia-Pacific shares outside Japan also slid 3.4%. Taiwan shares lost 5%, its biggest since in 2011, and Hong Kong’s Hang Seng Index dropped 4.2%.

As the turmoil hit Europe, markets in Germany, France, Italy and Spain all dropped by more than 3%. A similar drop was experienced in Australia, with the ASX200 falling 3.3%.

Here's a snapshot of the major European indexes, all in red https://t.co/ZjJpoylNpd pic.twitter.com/oXIm02JryL

— Bloomberg (@business) February 6, 2018

European stock-index futures tumble along with global markets https://t.co/hHF1zFM4Ql pic.twitter.com/xVklU2jIOm

— Bloomberg (@business) February 6, 2018

Before Monday’s fall, the US had not seen a pullback of more than 5% for more than 400 sessions, which analysts said was the longest such streak in history.

“Since last autumn, investors had been betting on the goldilocks economy - solid economic expansion, improving corporate earnings and stable inflation. But the tide seems to have changed,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities told Reuters.

The trigger for the sell-off was a sharp rise in US bond yields following Friday’s data that showed US wages increasing at the fastest pace since 2009, raising the alarm about higher inflation and with it potentially higher interest rates.

That could be painful for markets that have been propped up by central banks’ stimulus for many years.

Some analysts also say markets tend to get edgy when the US Federal Reserve has a new leadership.

The new Fed chief Jerome Powell, who succeeded Janet Yellen this month, is expected to continue Yellen’s stance of gradual tightening. Still, some investors regard a change in the Fed leadership as a source of policy uncertainty.

The 10-year US Treasuries yield rose to as high as 2.885% on Monday, its highest in four years and 47 basis points above the 2.411% seen at the end of 2017.

But a massive fall in share prices prompted an about-turn, and in Asian trade on Tuesday, it fell back to as low as 2.662%.

THE MARKET FALL EXPLAINED

1) What prompted the crash?

Fears that rising inflation could force central banks worldwide to hike interest rates has spooked investors and sent them heading for the exit.

Markets began taking a turn for the worse last week following strong US wage growth, which fuelled speculation that US interest rates might start to rise more quickly to cool inflation.

2) Why now?

Global markets have enjoyed a record-breaking rally and experts have been increasingly predicting that the bubble may soon come to an end.

Many stocks have been seen as being over-valued thanks to the seemingly never-ending gains.

But the prospect of monetary tightening after a decade of ultra-low interest rates and economy-boosting stimulus in the form of quantitative easing since the financial crisis has panicked investors.

It is thought that the sharp falls are also compounded by so-called algorithmic trading, where computers make automated trades and are programmed to take certain actions in response to market data. This can exacerbate market falls.

3) Is it the start of a major stock market crisis?

The falls are shocking as markets have become used to a prolonged rally and low volatility, but experts believe it is a long-overdue correction rather than a full-blown crash.

US, UK and European stock markets have been inflated for years by Quantitative Easing - central banks acting as a Magic Money Tree for buying shares. Made the very rich even richer. But also caused inflation, had to end. QE now being 'unwound'. Hence markets falling. #FTSE100

— Steve Howell (@FromSteveHowell) February 6, 2018

Finally - a 5% correction in the FTSE 100. This is not the time to panic... they used to happen all the time#ftse100 , #FTSE, #HODL

— Oliver Smith (@OSmith_IG) February 5, 2018

There has yet to be a significant flight to safety – such as gold investments – in a sign that investors are still optimistic over the geopolitical outlook and strong global economy.

Neil Wilson, a senior market analyst at ETX Capital, said: “This looks like a technically driven sell-off – therefore one that should not herald Armageddon.

“Plenty have noted that equities were jacked up by low rates and now need to readjust to higher rate world.”

4) What is a correction?

A market correction is defined as a 10% drop from the most recent high, whereas a crash is usually defined as a 10% plunge in just one day, which can often lead to a bear market, when a market falls 20% or more.

5) What does the correction mean for UK investors?

Investors will need to brace for more volatile stock markets over the months ahead.

Stock market falls will have an impact on the value of investments, such as pension funds and stocks and shares ISAs, although pensions are long-term investments and therefore ride out the peaks and troughs.

Volatility is also seen as being good for stock market traders, when a lot of money can be made on hefty falls and gains.

6) What’s likely to happen next?

All eyes are on the actions of central banks now and in particular the new chairman of the US Federal Reserve, Jerome Powell.

Either raising interest rates too quickly or delaying monetary tightening in the world’s largest economy could worry investors and spark further market falls.

Closer to home, the Bank of England’s moves will also be in sharp focus, with its latest decision on UK rates and forecasts due on Thursday when it also publishes its quarterly inflation report.

Speculation has been mounting that UK rates could rise again, to 0.75%, as early as May after stronger-than-expected growth, but markets could be boosted if the Bank plays down these expectations.

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