FTSE 100 falls to lowest level since August 2016 as US Fed sparks global selloff

The FTSE 100 has fallen to its lowest level since August 2016 this morning as a market selloff sparked by the Fed’s decision to raise interest rates spread to the UK.

US Federal Reserve chairman Jerome Powell hiked rates to a range of 2.25-2.5 per cent – the highest level in a decade, despite vocal opposition from Donald Trump.

All three major US indices fell as a result and Asian markets followed last night, with Japan’s Nikkei down 2.8 per cent and Hong Kong’s Hang Seng Index dropped one per cent.

European markets have felt the force of the global selloff with the FTSE 100 down 1.05 per cent, dropping below 6,700 points to its lowest level since August 2016.

The blue chip index had dropped as much as 1.7 per cent in early trading before recovering ground.

Germany’s DAX fell 1.1 per cent, while the France CAC slid 1.4 per cent.

“Rather than the traditional Santa rally, equities are enduring a Santa rout,” AJ Bell analyst Russ Mould said.

“Powell delivered a bit of a double whammy, flagging lots of worrying risks to the economy but still committing to two further rate increases in 2019.

“The scale of the response reflects just how fragile investor confidence is,” he added.

Only a handful of stocks are in positive territory for the day, with Shire – 2.8 per cent up – and Severn Trent – one per cent up – the biggest risers.

A weaker US dollar and stronger pound has also added to the FTSE’s woes with internationally-exposed stocks taking a hit.

“The decision to raise rates was not a surprise, however the guidance was, in that it wasn’t dovish enough,” CMC Markets analyst Michael Hewson said.

“The Fed showed no indication that they were prepared to rein back the pace of balance sheet reduction, and while they lowered their estimates for rate rises next year to two from three, it was almost as if they were offering a tin ear to market concerns.”

Sweden’s central bank also hiked interest rates – for the first time since 2011 – as well as Hong Kong, which moves in lockstep with the US dollar.