Yahoo Finance FTSE slumps as Bank of England intervention and IMF warning spooks investors
European stock markets tumbled into the red on Tuesday as weak jobs data, another Bank of England (BoE) intervention, and a warning from the International Monetary Fund sparked fresh fears for investors.
In London, the FTSE 100 (^FTSE) fell 1% by the end of the day, dragged down by insurers and pension fund operators, miners, retailers and banks, while the CAC (^FCHI) tumbled 0.4% in Paris, and the DAX (^GDAXI) was 0.7% lower in Frankfurt.
The sour mood came as UK unemployment tumbled unexpectedly to its lowest since 1974.The latest figures from the Office for National Statistics (ONS) revealed that 3.5% of adults were looking for work in the three months to the end of August, down from 3.6% the month before.
Average earnings growth excluding bonuses accelerated to 5.4%, however, this still stands around half the rate of inflation.
Elsewhere, the BoE was forced to make yet another intervention in bond markets after a record sell-off on Monday.
“Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” it warned.
Russ Mould, investment director at AJ Bell, said: "The fact the Bank of England has widened its support measures for the market by including index-linked gilts in its programme of government bond purchases will only serve to worry investors even more.
“So far, its support measures haven’t kept a lid on gilt yields as they have continued to creep up in recent sessions, thereby increasing the cost of borrowing for the government. And today’s news only triggers a very small retreat in yields."
The pound (GBPUSD=X) slumped as much as 0.5% against the dollar on the back of the news, trading below $1.10, before recovering some ground.
Read more: Bank of England intervenes again amid 'material risk' to UK financial stability
Michael Hewson of CMC Markets said: “The UK government now needs to show the markets that they can address the problems at hand without making matters worse, and on that the jury is out, with borrowing costs surging across the board, although that isn’t a problem unique to the UK right now.
“Bond markets are likely to continue to remain choppy until the Chancellor unveils his new budget, now scheduled to be unveiled on 31 October. Hopefully it won’t be a Halloween horror show.”
Later in the afternoon, the IMF warned that high inflation will persist longer in the UK than in similar economies, thanks to chancellor Kwasi Kwarteng’s unfunded tax cuts.
that high inflation will persist longer in the UK than in similar economies, thanks to chancellor Kwasi Kwarteng’s unfunded tax cuts.
Read more: IMF forecasts more pain for the UK: prices will remain higher for longer
Across the pond on Wall Street, the S&P 500 (^GSPC) dipped 0.2% and the tech-heavy Nasdaq (^IXIC) fell 0.6% at the time of the European close.
The Dow Jones (^DJI) managed to push higher, up 0.6%, as investors await the start of earnings season to assess the impact of inflation and rising interest rates.
It came as Jamie Dimon, boss of JP Morgan (JPM) told CNBC on Monday that the US economy faced several headwinds including rising rates, surging inflation, Fed tightening and the Ukraine war.
He said that he saw a US recession in six to nine months, and that the S&P 500 could fall another 20%, which would create “panic” in the credit markets.
Watch: How a US Recession Could Be Great News for Investors
Shares Asia mostly declined after a fourth straight drop in US equities amid persistent concern that rising interest rates and geopolitical threats will knock global growth.
In Tokyo, the Nikkei (^N225) slumped 2.6% while the Hang Seng (^HSI) fell 2.2% on the day, dropping below 17,000 points for the first time since late 2011.
Chipmakers led the falls as trading resumed after holidays in the wake of fresh curbs on China’s access to US technology.
Meanwhile, the Shanghai Composite (000001.SS) managed to eke out a 0.2% gain.
A measure of dollar strength held near the highest this month, and the Japanese yen traded within sight of the original level that spurred Japanese authorities to defend the currency in September.
Watch: How does inflation affect interest rates?
