FTSE slumps 7% amid recession fears
The FTSE 100 Index’s two-day revival came to a shuddering halt today as recession fears wiped £75bn from blue-chip stocks.
The market made strong gains on Monday and Tuesday in the wake of its worst week since the 1987 crash as optimism over global banking rescues spread.
But today the Footsie slumped 7.2% as concerns over global growth mounted and traders used the recent surge to take their money out of volatile stock markets. It closed 314.6 points lower at 4079.6.
Wall Street’s Dow Jones Industrial Average was also down more than 3% in early trading as gloomy US retail data fuelled economic worries.
US stocks were hit after retail sales plunged by a sharper-than-expected 1.2% in September, adding to concerns over fragile consumer confidence.
Despite the billions in aid to prop up a fragile banking sector, US investment bank JP Morgan’s third-quarter profits tumbled 84% to 527 million US dollars (£300m) after it unveiled more credit crunch losses.
Sentiment was also downbeat after UK unemployment jumped at its fastest rate in 17 years during the three months to August.
Tim Hughes, head of sales trading at IG Index, said: “Gains made on the back of the recent banking rescue plans from the US and European countries have been wiped out today as investors began to take the impact of slowing economic growth on board.
“It’s all or nothing at the moment, with yet another large one-day movement. The comedown after the euphoria of the multi-billion pound bail-outs earlier this week seemed inevitable, although a sharp rise in the latest UK unemployment figures hasn’t helped matters.”
Some economists have predicted UK unemployment could hit three million by the end of 2010 as the economy plunges – worse than the recession of the 1990s.
Mining firms dominated the Footsie fallers board because of concern about falling demand, although the price of traditional safe havens, such as gold, rose. The leading casualty was Kazakh miner Eurasian Natural Resources, which slumped 25%.
The mining sector in the FTSE 350 mining index fell more than 17%, the industrial metals sector was even worse hit, down 22.5%.
Meanwhile crude oil for November delivery fell to a 13-month low below 75 US dollars a barrel at one point in New York amid fears of falling demand because of a recession. In London, Brent crude hit 70.36 US dollars a barrel.
The price falls sent shares in heavyweight oil giants BP and Royal Dutch Shell down 7%.
Banks fared slightly better after reports the Treasury was under pressure to rework its £37 billion bail-out to allow some dividends for investors.
HBOS gained slightly, Royal Bank of Scotland – raising £20 billion from the Government – was unchanged, and Lloyds TSB fell less than 1%.
