Following on from Tuesday’s bloodbath over on Wall Street, the FTSE 100 fell almost 250 points at the opening bell this morning, although it has since recovered around half of those losses.
Overnight, the Dow Jones plunged more than 1,100 points, recording its worst one-day performance since 2011.
It marked a second day of heavy losses for US equity investors amid interest rate hike fears with the current wobble sparked by wage data released on Friday.
Here, we’ve compiled snippets from various commentators’ responses to the recent falls:
‘A perfect storm’
Mike van Dulken, head of research at Accendo Markets
“Whilst the roots and drivers are sure to be discussed for days, it looks to emanate from a perfect storm of reasons including, but not restricted to, a strong 2017 rally extending into January, low volatility, low interest rates, over-optimism and complacency, over-leverage and financial engineering, all coming to a head as investors react to the possibility of higher/faster interest rates rises with bond yields creeping higher to jeopardise the current market situation.”
‘No place to hide’
Jasper Lawler, head of research at London Capital Group
“There has not been a place to hide in the market today. Every sector on the FTSE 350 is seeing significant losses. Basic Resources and industrials have been amongst the worst performers with utilities down the least, acting as a relative haven. A slump in the oil price has sent shares of BP down despite some generally healthy fourth quarter results. Profit-taking is a key factor in the minds of investors. It’s clear to see in the reaction to Ocado’s earnings update that on a bad day in the market and after a big run up in the share price, investors are pulling out profits while they can.”
‘Just a sobering correction’
Jacob Deppe, head of trading at Infinox
"While the fall in global equity markets looks dramatic, it is no more dramatic than the record rises we have seen since the end of November. For that reason alone many would argue a correction was on the cards. The party may be over for now but this could be more of a sobering correction than a rout. There have been plenty of warnings over the past few weeks that equities were overvalued and that US stock markets in particular were overheating. Aside from the FTSE 100, which is populated by a large number of Dollar-denominated firms, there’s little economic reason for the contagion to spread to other European indices.”
‘Next financial crisis on the horizon?’
Jim Reid, strategist at Deutsche Bank
“The last few days have really emphasised how easy it would be to get the next financial crisis if inflation really started to misbehave as most of this price action stems from a hint of it. [In a recent note], we said the next crisis was inevitable soon and that the most likely cause over the next 2-3 years was if what we called the great withdrawal of unconventional policy coincided with higher inflation, especially given what are still record high levels of global market debts. If higher inflation materialised then central banks would be unable to respond in the way they have done in recent years (and even decades).”
Connor Campbell, analyst at Spreadex
“Seemingly the only hope for the markets at the moment is that investors suddenly decide that the sell-off has been a bit overdone – though in a way it is fitting, matching the astonishing, record-breaking recent rise of the global indices with an equally astounding, heart-stopping drop. Admittedly the Bank of England could go some way to allaying investors’ fears of rising interest rates on Thursday, if Mark Carney issues a more dovish statement than forecast.”
‘A healthy correction, nothing more’
James Knightley, chief international economist at ING
"This appears to be more of a “healthy” correction rather than the start of a broader re-evaluation for earnings. Indeed, the US economy is in great shape right now and the financial sector is in a more robust position than it was ahead of the last major sell-off. That is not to say that we won’t see further falls in coming days, but in an environment where growth is good and earnings are expected to rise globally, there are decent underpinnings."
‘Global political and economic outlook still positive’
Neil Wilson, senior market analyst at ETX Capital
“While this has been a bit of an equity bubble, there are some signs that investors are putting their cash into bonds for safety with yields coming back down a touch. This is indicative of a broader risk-off move and logical as investors take profits and park cash in relative safety. Nevertheless we are yet to see a significant flight to safety – the yen and gold are barely moved by events. That’s mainly because the geopolitical outlook is unchanged and global economic outlook still very positive.”
‘Corporate earnings still justifying valuations’
Richard Hunter, head of markets at Interactive Investor
“Many of the previous reasons for optimism remain. Corporate earnings continue to justify valuations, the general synchronised economic recovery is still intact, and even an aggressive increase in the interest rate across the pond would still likely leave them at relative historic lows. Meanwhile, for the moment, yields remain attractive with many considering equities to be the investment destination of choice. Providing that the current situation of letting some air out of the tyres does not result in a puncture, this reset could be seen as a justified reaction to recent exuberance.”