The FTSE 100 plunged to its lowest level since April and US and European stocks tumbled as surging coronavirus cases and a lack of US stimulus sent shockwaves through markets.
London’s blue-chip index dropped three per cent in afternoon trading, its third fall in as many days, to just 5,556 points.
European stocks slumped to a five-month low and US markets fell sharply. The lethal cocktail of rising new Covid restrictions and fading stimulus hopes sent investors towards the safety of the dollar and government bonds.
“It is getting very ugly out there,” said Edward Moya, senior market analyst at Oanda. “Covid-19 anxiety is back.”
Joshua Mahony, market analyst at IG, said a “second bout of nationwide lockdowns” had raised the chances of a “double-dip recession”.
Broad decline drags down FTSE 100
In Europe, Germany’s Dax index slumped four per cent as the global sell-off accelerated in the afternoon.
German chancellor Angela Merkel is pushing for new curbs on the hospitality and leisure sectors to try to limit the spread of Covid.
France’s CAC 40 was down 3.7 per cent and the Europe-wide Stoxx 600 shed 3.1 per cent.
Rolls Royce led the FTSE 100 lower, while industrial and mining stocks slid on expectations of lower demand. Property-focused firms also suffered.
“A national lockdown, as we have seen in Q2, ravages an economy,” said Fiona Cincotta, market analyst at City Index.
“Whilst Germany and France are considering a lighter version than the lockdown seen in March, tighter lockdown restrictions have already resulted in business activity in the Eurozone contracting.”
Fawad Razaqzada, market analyst at Think Markets, said: “Investors are forced to reassess their optimistic projections on growth and are thus reducing their risk exposures accordingly.”
He said short-selling had “undoubtedly” added to the pressure. “Short-term focused traders [have moved] to take advantage of the volatility.”
US stocks tumble and oil drops
US stocks slid for the third day running as pressure hit markets from multiple directions. The S&P 500 dropped 2.9 per cent and the Dow Jones shed three per cent. The Nasdaq was 3.1 per cent lower.
The US is dealing with a surge in coronavirus cases, just like Europe. But it is also facing a messy presidential election, and a much hoped-for stimulus bill has not materialised.
Oanda analyst Moya said: “Right now virus concerns, lack of stimulus, and election outcome uncertainty have forced investors to scale down their reopening bets.”
Oil prices slipped as investors bet that new coronavirus restrictions would hit demand. The Brent crude benchmark price fell 3.8 per cent to $39.20 per barrel.
That hit FTSE 100 oil giants BP and Shell as well as France’s Total dropped. US oil majors were hit in pre-market trading.
“Waning US gasoline dependencies at the pump… are pushing oil ever so closer to a Covid-19-induced tipping point,” said Stephen Innes, chief global market strategist at Axi.
“The return of the ‘sudden stop’ economic nightmare will play a considerable role in the market’s mindscapes over the next few weeks.”
The dollar jumped 0.6 per cent against a basket of other currencies as investors sought safety.
Its rise hit the pound, which fell 0.5 per cent to $1.297. Sterling’s fall helped support the FTSE 100 somewhat compared to other European markets, as it makes companies’ overseas earnings worth more in relative terms.