London’s leading index fell by more than 250 points this morning as part of a global market sell-off after Wall Street suffered its biggest one-day fall on record.
The FTSE 100 started the day down 3.4 per cent at 7,083. It was the second day that markets in Europe and Asia fell. In Tokyo the Nikkei 225 index slumped 1,071.84 points, or 4.7 per cent, to 21,610.24m and in Paris the CAC 40 fell 3.1 per cent.
“This is fear rolling over itself, ” said Jingyi Pan, market strategist for IG Singapore.
Intensifying worries over the impact of rising inflation piled pressure on to markets across the world. Central banks respond to rising inflation by raising interest rates. This increases costs for businesses and households, curbing investment and spending and slowing economic growth. It also makes shares less attractive than other investments such as bonds.
We could also write this as: QE increased asset values. The return of inflation – an aim of QE – means less QE is required, even that it will be slowly reversed, as the US has already announced. Therefore asset values should give up their QE boost.
I wouldn’t say that either story is 100% true and complete but I’d take a stab at claiming the second one is better.