Trading floors throughout the world were overwhelmed by fear yesterday, as investors pulled cash out of risky assets and sent stock markets plunging further into the red.
Around $1.2 trillion has been wiped off the value of global equities since the start of the week, with banks bearing the brunt of widespread concern that another recession could be on the cards.
In London the FTSE 100 dropped to its lowest level in more than three years, while in Europe as a whole shares sank to a two-and-a-half year low.
European banks lost more than six per cent yesterday. French giant Societe Generale suffered the sharpest drop, down 12.6 per cent at close after releasing its latest financial results.
British banks fell to a seven-year low, shedding another five per cent of their market value.
Shares also closed in the red across the pond, with Bank of America down nearly seven per cent and Citigroup down 6.4 per cent.
Some analysts believe that years of easy money have contributed to the chaos. “Keeping policy too easy for too long and boosting asset markets in the vain hope that this would deliver a sustainable demand pick-up has meant that even a timid attempt at normalising Fed policy has caused two months of mayhem,” said SocGen’s Kit Juckes.
Saxo Bank economist Steen Jakobsen added: “This week may go down in financial history as the week when central bank planning died – the 2016 version of the fall of the Berlin Wall.”
Other commentators were more upbeat, insisting that economic fundamentals remain sound.
Nonetheless, market expectations of Bank of England monetary policy, as gauged by so called overnight index swap rates, suggest there is a stronger chance of an interest cut this year rather than a hike.
UK government borrowing costs fell to record lows yesterday, and sterling slumped to a 15-month low.
Gold, seen as a safe investment during times of volatility, jumped another five per cent to trade above $1,250 per ounce. The yield on 10-year US government notes slid to its lowest level in more than three years.