FTSE slumps as European indices retreat and Dow struggles

The FTSE 100 Index slumped more than 100 points on Wednesday, wiping more than £30 billion off the combined value of blue-chip firms, after a volatile session of ups and downs amid continuing anxiety over China.

Early trading saw the index of the top 100 UK-listed companies slump more than 100 points, later bouncing back to register a slight gain, before finally closing down 1.7 per cent , or 102.1 points at 5,979.2. Germany’s Dax and France’s Cac 40 were also down by around 1 per cent. The Dow Jones struggled to remain in positive territory during afternoon trading.

London’s listed mining giants — which have been badly hit by the slowdown in China and its impact on commodity prices — were at the heart of the volatility, seeing both falls and climbs during the day. The latest turbulence came after a 3.1 per cent rise in the FTSE 100 in the previous session, boosted by an interest rate cut from China.

That had followed a 10-day run of declines for the index, its longest losing streak since 2003, including a 4.7 per cent fall on Monday that was the joint-worst one-day drop since the dark days of the downturn in 2009.

The latest session in London saw an initial steep fall of around 130 points, or 2 per cent , following a Wall Street slump late the previous day and another fall overnight for China's Shanghai Composite.

Connor Campbell, financial analyst at Spreadex, said European markets had later been buoyed up by hints that the European Central Bank would be ready to inject more stimulus into the eurozone economy if needed. But he added: “Such robust trading couldn’t last long, with losses beginning to widen once again after the post-US open dust settled.”

He said the situation would become even more complicated tomorrow with the latest second quarter US growth estimate expected to see the performance of the world’s biggest economy revised up. Yet the reading “might struggle to make itself heard if the markets have to endure another choppy Asian session”.

Key shares

China’s key share indexes had attempted to move higher several times during Asian trading only to be slapped back by waves of selling, reflecting investors’ views that much more support was needed from the government and the central bank.

Despite a late struggle, the CSI300 index closed down 0.6 per cent and the Shanghai Composite Index ended off 1.3 per cent for fifth straight day in the red. It followed on from a jarring finish on Wall Street where the S&P 500 slumped more than 3 percent in the last hour.

The CBOE Market Volatility Index was still elevated at 36 on Wednesday, indicating significant uncertainty, even though the “fear index” as it is known was below the previous day’s six-and-a-half year peak of 53.3.

“The root of this is concern that growth in China may be a lot lower than what the market had thought,” said Michael Bolliger, head of emerging market asset allocation at UBS Wealth Management in Zurich. “They made further announcements yesterday but the market does not appear fully convinced, it has not distracted people from the fears about the economy.”

There was more choppiness in currencies, with the dollar beginning to lose steam again in Europe having been on front foot for most of the Asian session. The euro, which has taken on somewhat of a safe-haven status during the recent volatility, briefly turned higher on the day, rising to $1.1515. The dollar also dipped back to 119.35 yen, having been at 119.83 yen in early deals.

Fixed income markets were active with investors back in the mood for safety in government debt and cash. The yield on benchmark US 10-year Treasuries eased to 2.0854 per cent from 2.091 per cent in late US trade. It was close to 2.50 percent barely a month ago. China’s downturn and global market turmoil have also created fresh uncertainty over whether the US Federal Reserve will begin raising interest rates this year.

Bond yields

German 10-year bond yields – the euro zone benchmark – also dropped 5 basis to back below 0.70 per cent, though that was still a way away from Monday’s 0.51 per cent lows when the China fears had coursed through markets.

"Some parts of the Asian bond markets have become quite illiquid and investors are only buying high-quality paper amid this selloff," said Hayden Briscoe, fixed-income director at AllianceBernstein in Hong Kong.

Despite China's struggles, Asia had shown some signs of stabilisation after its recent lurches. Japan's Nikkei and Korea's KOPSI were among the bright spots, with the former rising 3.2 per cent as the dollar pushed down the yen.

The latter jumped 2.6 per cent in its biggest jump in two years. Commodity prices which have been firmly in the China firing line, hovered just above multi-year lows hit earlier in the week. The price of copper, often considered a proxy for global economic activity because of the metal’s extensive use, dropped back 1.8 percent to $5,065 per tonne after a bounce on Tuesday.

A fall in a host of other industrial metals also kept the 19-commodity Thomson Reuters/Core Commodity CRB Index close to lows not seen since 2003. Oil was bucking the trend. Brent crude futures last traded at $43.50 per barrel, more than a dollar above six-and-a-half-year low of $42.23 on Monday.

US crude also ticked up to 39.55. Gold, meanwhile, was one of the few traditional safe-haven assets to lose ground, as it dipped 0.3 percent at $1,136 an ounce.

- Reuters/PA