The fear stalking global markets escalated yesterday as traders fled risky assets for safe haven investments to weather the turmoil.
With concerns over the strength of the global economy and an increasingly gloomy Eurozone, the UK’s blue chip equity market plunged to a 15-month low as the clock ticked over – wiping £46bn off stocks.
Worries over conflicts in the Middle East and Ukraine have knocked confidence in the global outlook in 2014, while the threat from Ebola is also denting sentiment. Yesterday, the American Vix index, which measures volatility, hit a two year high.
UK 10-year gilt yields sank to their lowest level since May 2013, dipping to 1.94 per cent. They offered their smallest premium over German bunds in more than four months as investors piled into the asset class.
The stampede away from riskier investments also sparked a massive rally in US Treasuries, pushing the 10-year yield to as low as 1.87 per cent – its lowest level in 15 months
“It typically takes weeks for 10-year Treasuries to move 29 basis points,” said Tom Di Galoma at ED&F Man Capital in New York.
“Today it moved 25 basis points in five minutes.”
Market tensions also flared up again in Greece, rekindling memories of the Eurozone crisis that engulfed the single currency after the financial meltdown.
Greek equities were among the biggest losers on global markets, as Athens’ benchmark ATG index succumbed to a second day of selling pressure and sank 6.3 per cent.
Greek 10-year borrowing costs shot up by more 80 percentage points to 7.85 per cent, their highest level since February.
Overall, European stocks did badly, with $255bn wiped off the Stoxx Europe 600 index – a value greater than the GDP of Portugal.
It has been a rocky year for markets – after a healthy start, recent weeks have seen steady declines in the world’s major indices.
US stock markets were also led lower by the gloom stalking markets, but staged a late recovery to cushion some of the falls. The S&P 500 tumbled as much as three per cent in early trading, its worst daily fall since 2011, before closing down 0.81 per cent
The index is now down 0.8 per cent for the year and has lost 7.4 per cent since a record high on 18 September.
The Dow Jones industrial average fell 1.06 per cent and the Nasdaq sank 0.28 per cent. Video streaming service Netflix’s shares plunged more than 25 per cent in after-hours trading. The FTSEurofirst 300 index of top European shares closed 3.1 per cent lower.
Many indices were led lower by pharmaceutical stocks, in the wake of a clampdown by the US Treasury on M&A deals pursued for tax reasons.
US retail sales dropped 0.3 per cent in September, commerce department figures showed, and further data showed manufacturing slowed more than expected in October.
The Empire State index dropped to 6.2 from an almost five-year high of 27.5 in September. Readings greater than zero signal growth.
However, some City analysts remain upbeat. “This doesn’t mean that this bull market is going to turn into a bear market,” Kully Samra, managing director at Charles Schwab, told City A.M. from the US. “For that to happen, you need to have a recession either happening or on the horizon, and everything we see doesn’t suggest that a recession is going to happen anytime soon in the US. The recent selling we’ve seen could be just setting up for a nice year-end run.”
But Capital Economics’ Paul Ashworth said: “The US economy hasn’t suddenly gone into a nosedive.”
THE CLOCKS TICK DOWN… STOCKS PLUMMET: A BLACK DAY IN THE MARKETS
8am: FTSE falls out of bed, dropping nearly 50 points after the bell is rung, weighed down by pharma stocks
US retail sales data show a sharper than expected fall, down 0.3 per cent in September, adding to the bearish sentiment
Soon after UK 30-year gilt yields hit an all-time low of 2.75 per cent as investors flee to safe havens
2:30pm: US shares open lower. The S&P and Nasdaq soon hit their lowest points of the year. WTI oil also slides to $80 a barrel
3pm: And Brent crude touches another four-year low, sinking to $84 a barrel
The run to safety is reflected in US and UK debt, with 10-year bond yields tumbling below two per cent
4pm: Attention turns to Greece, where stocks fell more than 10 per cent
4:30pm: FTSE 100 closes down 2.8 per cent, wiping £46bn off the value of the top 100 blue chip companies