The FTSE 100 Index crashed by more than 250 points on Tuesday as global markets shuddered following the biggest one-day fall in the Dow Jones in six years.
The index of Britain’s biggest companies fell to 7,104.94 having earlier dropped to 7,079.41 – down 3.5%. However, Bloomberg, as of 8.30am, reported a slight recovery, with falls of 2.3%.
Asian and Australian stock markets also tumbled in reaction.
US stocks plunged overnight 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.
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%.
Jasper Lawler, the head of research at online trading firm London Capital Group, told the Guardian: “The stock market open in the UK and Europe looks about as bad as it can get.
“The bloodbath on Wall Street, which was repeated in Asia, has seen confidence evaporate in Europe.”
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%.
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