FTSE loses over 4% as investors sell stocks on recession fears

<p>The FTSE 100 fell over 4% on Thursday, having briefly fallen as much as 5%, as investors sold out of stocks and preserved cash after […]</p>

The FTSE 100 fell over 4% on Thursday, having briefly fallen as much as 5%, as investors sold out of stocks and preserved cash after a stark warning over US growth by the Federal Reserve and as economic indications continued to highlight a sharp slowdown in global activity.

Considering the sheer weight of evidence pointing towards a sharp slowdown in global activity, fears over a return to recession have increased and investors have moved to downsize the amount of risky asset classes they hold as a result.

No stock on the FTSE 100 saw gains on the day, with investors reducing their holdings in every stock on the UK large cap index.

There is absolutely no surprise that the Federal Reserve announced ‘Operation Twist’ last night as this had been well leaked earlier in the week. However, this week has just seen negative news stories pile on top of each other, one after the other. The negative tone struck by the Federal Reserve over the outlook for the US economy already made investors cautious and the deterioration of manufacturing data, including the forward looking elements, shown today by China, Germany and France has emphasised the risk that global economies could be slipping back into recession mode.

All of the negative news has just culminated into a scenario whereby investors are asking themselves whether they really should be putting their money in risky stocks or defensive safe havens. Today’s markets show the answer has firmly been the latter of those two options.

We have seen European indices fall between 4%-5% as investors recycle funds out of stocks, whilst the US dollar has gained strongly against a basket of currencies and US 10-Year Treasury yields hit new 60-year lows of 1.76%, showing that investors are increasingly willing to take very low premiums to ensure the safety of their cash.

Miners took the brunt of the selling in London, with Kazakhmys and Antofagasta the worst fallers on the FTSE 100, losing 11%. The third straight month of slowing manufacturing in China, alongside a fourth straight month of increasing input prices, has left investors worried that Chinese growth is slowing too quickly, and that this is likely to sap basic metal demand.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.