FTSE loses over 4 as investors sell stocks on recession fears

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.