VOLATILE markets plummeted yesterday, reversing some of the extraordinary, record-breaking gains that have been printed during May.
The FTSE 100 suffered its sharpest one-day drop in a year, closing down 2.1 per cent at 6,696.79.
The blue-chip index turned almost entirely red, with 94 of its companies ending down on the day – the highest number of fallers since September, according to Datastream.
Equity traders across the world reacted strongly to the revelation on Wednesday night that the US Federal Reserve could decide to apply brakes to its stimulus programme as soon as next month, so long as the American economy appeared sufficiently strong.
The Fed’s $85bn (£56bn) a month securities purchases have helped drive US stock markets to fresh all-time highs, while in London the FTSE 100 touched a 14-year peak this week.
But yesterday, spooked by the possibility of a Fed stimulus slowdown, markets dipped across Asia and Europe. In Japan, the Nikkei plunged 7.32 per cent, also weighed down by a flash survey that pointed to shrinkage in nearby China’s manufacturing sector during May.
The widely-regarded HSBC/Markit purchasing managers’ index (PMI) dropped to a preliminary estimate of 49.6, a seven month low. Scores below 50 show an economic contraction.
Markit also released a flash PMI for the Eurozone economy, which came in at 47.7 for May – a three month high, but still pointing to recession. The Euro Stoxx 50 index of shares closed down 2.05 per cent.
And a PMI of America’s factory sector fell to 51.9, down from April’s 52.1 and disappointing some investors. The Dow Jones closed down 0.08 per cent.