FTSE 100 and European stocks plunge amid fears of US recession
London’s FTSE 100 has fallen to its lowest level since April as a global market rout triggered by fears of a US recession continued into a new week.
The blue-chip index dropped 2.0 per cent to close at 8,008.23 on Monday, while the mid-cap FTSE 250, which is more closely aligned with the health of the UK economy, ended 2.8 per cent lower at 20,251.97
Just two of the FTSE 100’s constituents were in the green. UK banks were among the index’s biggest fallers, with shares in Barclays, Natwest and Lloyds dropping as much as 5.2 per cent, 4.8 per cent and 4.4 per cent respectively.
Elsewhere in Europe, France’s CAC 40 dropped 1.6 per cent, while Germany’s Dax fell 1.9 per cent. The Stoxx 600 benchmark dropped 2.2 per cent to its lowest level since February.
Investor uncertainty comes after weaker-than-expected job growth figures last Friday triggered fears of a recession in the world’s largest economy.
US non-farm payrolls rose by 114,000 in July, one of the weakest postings since the Covid-19 pandemic and well below the 175,000 economists had expected, while job growth for the prior two months was revised lower.
The unemployment rate also hit a three-year high of 4.3 per cent, overshooting expectations of 4.1 per cent.
US futures slid on Monday, with the tech-heavy Nasdaq 100 at one point expected to open nearly 1,000 points lower.
Traders are now eying a 200 basis point cut in interest rates from a more than two-decade high over the next 12 months in the expectation that the US Federal Reserve will be forced to aggressively ease monetary policy to stave off a recession.
Derren Nathan, head of equity research at Hargreaves Lansdown, said “the US sneeze risks becoming a cold”.
“Exporters bore the brunt of the sell-off as contagion from last week’s poor employment and manufacturing data in the States put recessionary fears back on the table,” he added.
Investors were also unimpressed by financial results from US tech giants last week, with Intel and Amazon dropping 26 per cent and nine per cent respectively on Friday.
Japan’s Nikkei 225 dropped as much as 12.5 per cent on Monday in its biggest intraday fall since 1987, reversing all of its gains so far this year.
Meanwhile, South Korea’s benchmark KOSPI plunged as much as 8.1 per cent – its largest one-day drop since 2008 – extending losses from Friday and triggering trading curbs for the first time since 2020.
“This is a perfect demonstration of what happens when everyone tries to sell at once,” said Chris Beauchamp, chief market analyst at IG.
“Such moves don’t stop in a single day and we likely have a summer of volatility ahead of us, particularly as we await developments in the Middle East.”
The world is bracing for a significant attack on Israel by Iran as early as today after the latter swore revenge over the assassination of Hamas leader Ismail Haniyeh in Tehran last week.
“While US stocks may tread water for some time, we think investors should buy into weakness in the UK and Europe and focus on UK domestic earners that benefit from policies implemented by the new Labour government,” Joachim Klement, an analyst at Panmure Liberum, said in a note.