It has been a bruising start to the new working week for the City with the FTSE-100 opening around two per cent down and tumbling below the 8,000 mark for the first time since April.
So why the sudden outbreak of turbulence on a Mardy Monday so soon after the first interest cut in four years from the Bank of England last week?
The answer lies, as so often, not in the outlook for the UK economy, which is in relatively robust health, but across the Atlantic, where fears have grown in recent days about America sliding into recession at a time of increased turmoil in the Middle East.
Investors were spooked by a series of weaker than expected economic data, particularly Friday’s remarkably poor jobs figures, which showed a sharp fall in hiring and a fourth consecutive rise in the jobless rate.
They came in the same week that the US Federal Reserve held interest rates yet again, leading to fears that the American central bank has delayed easing monetary policy too long and risking tipping the world’s economy into recession. There is even now talk of the Fed rushing out an emergency cut in rates such has been the febrile state of the markets.
Also last week, shares in some of the US tech giants that have propelled stock markets in America to stratospheric levels this year, slumped alarmingly after delivering weaker than expected earnings figures for the second quarter of the year with Amazon, Intel, Microsoft and Nvidia seeing some of the biggest falls.
The tech heavy Nasdaq Composite dropped 3.4% this week, bringing its three-week slide to 8.8%, its worst performance since September 2022.
The “triple whammy” of delayed US interest rate cuts, worse than expected US economic data, and disappointing figures from Silicon Valley, have combined dangerously to dramatically change the narrative among investors about the outlook for the world economy and led to a massive pivot away from riskier and more volatile assets such as company shares and Bitcoin to safer havens such as Government bonds,
The result today has been an financial earthquake sending out shockwaves circling the world. As dawn broke in Australia and the Far East traders were engulfed by a wave of selling that sent Japan’s Nikkei index crashing more than 12% in its worst ever points loss and its biggest one day collapse since Black Monday in October 1987.
The rout hit European bourses this morning with Germany’s DAX Index and France’s CAC both down by around 2%.
Investors will now be asking themselves whether this is a bout of summer jitters that will blow itself out in a day or two, or something more profound that will gather momentum and turn into major crash territory.
And while the turbulence may have its origins in America, the fallout will be felt by every British worker with pensions or other savings invested in shares, and possibly undermine the confidence we have seen returning to the economy over much of this year.