22 January 2008Katie Allen
Hopes of more interest rate cuts lent much-needed support to leading London shares today but they failed to erase yesterday's savage losses as talk of an impending US recession continued to rattle nerves.
Following steep sell-offs in Asian stock markets overnight, the FTSE 100 plunged more than 200 points within minutes of the open, adding to a sharp fall the previous session.
With traders continuing to talk of a "bloodbath" in London and predicting "carnage" on Wall Street, the FTSE only tentatively clambered into positive territory. Property firms drove some short-lived gains for the index on talk that the market mayhem could prompt rate cuts sooner rather than later both in Britain and elsewhere.
In choppy trade, the FTSE 100 was up just a few points at midday and then slipped back to be 5.6 points lower, or down 0.1%, at 5.572.6 by 12.05pm.
Nerves remained frayed after Monday's 5.5% plunge - the biggest fall since 9/11.
European markets are now bracing for Wall Street's open this afternoon. The US markets were closed yesterday for a public holiday and futures markets indicate traders could return from their long weekend to more gloom. The Dow is seen heading sharply lower at the opening bell, adding to the steep losses at the end of last week.
Any fall is likely to intensify selling pressure in other markets.
"After being closed for the long holiday weekend, US indices are heading for carnage on the open," said Martin Slaney, head of derivatives at GFT Global Markets.
"There are all sorts of rumours flying around, particularly surrounding the likelihood of the Federal Reserve cutting rates today, ahead of the scheduled meeting next week, or even of coordinated action between the US, UK and European central banks.
"Any such action will depend on the severity of losses we see in the US today."
Bargain hunting boosted some shares in London this morning as stocks that were hardest hit in yesterday's plunge were snapped up early on. Asset manager Schroders and building materials firm Wolseley were among the biggest risers.
Financial Times publisher Pearson was also higher as it promised the City it would report a stellar 2007.
The stock market dives around the world have been driven by fears that the US, the world's biggest economy, is headed into recession. Worries about property market prospects, demand for raw materials, consumer spending and turmoil in financial markets have knocked investor confidence across all sectors.
"With market nerves tested relentlessly by concerns that a sliding US economy could drag down global growth, risk aversion is spiking higher, causing equity prices to plunge," says Astrid Smit, head of investment strategy at ABN Amro Asset Management.
"It is too early to say that the worst has been priced in. But it would seem reasonable to assume that as recessions go, this downturn is likely to be short and mild."
In the UK the ongoing woes of mortgage lender Northern Rock have added to the gloomy sentiment. Its troubles stem from gridlock in money markets - the credit crunch - which itself began with problems in the US sub-prime mortgage market - risky loans to borrowers with poor credit histories. Many of those loans have now gone bad.
Troubles that started in America have spread around the world and stock markets in Asia have been particularly hard hit in recent days.
In Asia overnight, major stock markets fell heavily. Japan's Nikkei ended down 5.7% at its lowest level in more than two years. Shanghai's Composite index fell more than 7% to a five-month low. In Hong Kong, leading shares were down more than 8%.
India's Sensex index plunged more than 12% at one point as panicky investors dumped shares. Sharp falls earlier prompted the market to be temporarily suspended.
The fresh plunge for Asian stocks follows a grim Monday around the world for equity markets.
Yesterday, the FTSE 100 ended down 323.5 points, or 5.5%, at 5,578.2. Almost £77bn was wiped off the value of leading shares. It was the FTSE 100's biggest one-day fall in history in points terms. In percentage terms it was the sharpest one-day fall since September 11 2001, when the index shed 5.71%.
"It was carnage yesterday," said David Buik of Cantor Index. "Apart from the US, where Martin Luther King Day was a public holiday, global markets fell around their ears. It was a bloodbath across the spectrum."
The FTSE 100 is now down more than 13% since the start of the year.
Monday's fall was driven by a torrid day for the miners, sharp falls for banks and pressure on energy stocks as fears intensified over the US economic outlook and the potential blow to demand for commodities from metals to fuel.
This morning US crude slid below $87 a barrel, London Brent fell through $86. Industrial metals such as copper continued to fall as did precious metals.
http://www.guardian.co.uk/business/2008/jan/22/marketturmoil.equities1
