Stock markets across Europe are bracing themselves for huge falls after what was described as “carnage” in indexes across Asia overnight.
Falls in Japan and Australia were prompted by a plunging markets in the the US – with the Dow Jones on Monday experiencing its greatest one-day points fall in history.
The FTSE 100 was expected to fall nearly 4% on opening. That follows a 6% drop in Japan’s benchmark Nikkei 225 index and a 3.3% fall on Australia’s ASX200.
“There’s genuine carnage out there,” Chris Weston, chief market strategist at IG in Australia told the Washington Post.
“Everyone is just running for the hills because nobody actually knows what is causing this move.”
In Japan, the Nikkei 225 index declined by as much as 7% during the day’s trade before a slight recovery to close down 4.7%. The Nikkei’s decline of 1,071.84 points was its largest point fall since 2016.
Maki Sawada, from the investment research and investor services department at Nomura Securities Co, said stocks were being sold in panic after the Wall Street losses.
“The sell-off accelerated in a chain reaction,” she told Kyodo News.
Other markets across Asia also suffered losses. South Korea’s Composite Stock Price Index fell by about 3% in morning trade. Hong Kong’s Hang Seng index plunged 4.9% while the Shanghai Composite index lost 2.2%.
These losses followed the 1,175 point dive in the Dow Jones industrial average on Monday, with investors appearing to react to equity losses and concerns that central banks will soon increase interest rates to rein in inflation. It coincided with the arrival of Jerome Powell as the new chair of the US Federal Reserve.
“This was volatility unleashed,” said Jack Ablin, chief investment officer at at Cresset Wealth. “It’s partially fear of interest rates, partially this new Fed chairman Jerome Powell, partially the market is overvalued relative to fundamentals.”
While market fear may not be based in any change in economic fundamentals, in its last meeting under chair Yellen, the Federal Reserve indicated it expects inflation pressures to increase through the year.
According to projections released in December, officials expect three rate hikes in 2018 – so long as market conditions remain broadly as they are – but some economists believe the central bank could add another increase at its final meeting of the year.
If the market falls continue they could prove problematic for Donald Trump who has consistently touted record high stock markets as proof that his presidency is boosting the economy.
US stocks have now lost $1tn in value in the first five days of February. However, the White House, responding to the market drop insisted on Monday night that long-term economic fundamentals “remain exceptionally strong”.
Vice President Mike Pence characterised the stock market’s Monday plunge as “simply the ebb and flow of our stock market”.
In London, shares in Britain’s top 100 publicly listed companies on Monday suffered their worst single-day slump since Theresa May called the snap election last April.
The index of Britain’s top 100 companies stretched its longest losing streak since last November into a fifth day, following a 1.3% fall. The FTSE 100 index tumbled to 7,345, having peaked at almost 7,800 last month.
“The era of cheap money is ending, and for markets who got addicted to it, it’s undoubtedly bad news,” said Hussein Sayed, the chief market strategist at currency dealer FXTM.
The Reserve Bank of Australia announced on Tuesday that it would leave interest rates on hold.