LONDON (AFP) – Panic gripped trading floors across the world yesterday, with Asia and Europe plunging after record-breaking losses on Wall Street, as investors fretted over the prospect of rising US interest rates and took profits following months of markets euphoria.
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The selloff began last Friday when bright US non-farm payrolls data sparked fears that inflation will surge this year – and that the Federal Reserve will be forced to raise borrowing costs more quickly than anticipated.
In initial trade yesterday, European stock markets collapsed by about 3.5 percent, mirroring dramatic falls across Asia.
“It’s not doom and gloom, and it’s not financial markets Armageddon; it’s just a much needed and much overdue correction,” AxiTrader analyst James Hughes told AFP.
“There are four stages of a fall: hope, greed, panic and fear. We are not at fear, but we are at panic at the moment – which is only natural after a 1,175-point fall.”
New York’s Dow Jones Industrial Average saw its steepest ever one-day point drop on Monday, shedding a total of 1,175.20 points or a hefty 4.6 percent in value.
And 10-year US Treasury yields are still hovering at four-year peaks.
European markets later trimmed their gains somewhat yesterday to stand about 2.5 percent lower compared with Monday’s closing level.
“Markets usually grind to the upside, but fall like a rock,” said analyst Naeem Aslam at trading firm ThinkMarkets.
“Traders have been looking at the market for the past year moving in one direction which was skewed to the upside. Now, it’s time for the bears to take their revenge.”
Prior to this week’s chaotic selloff, Wall Street had enjoyed an impressive record-breaking run ever since Trump’s 2016 election on hopes over the US president’s pro-business tax-cutting policies.
Asia and Europe had meanwhile reaped bumper gains from the improving economic outlook.
“If investors had been waiting for an opportunity to take profits, the prospect of higher than expected inflation and tightening by the Fed provided just that,” added Richard Hunter, head of markets at online stockbroker Interactive Investor.
“Rising interest rates, whilst potentially good news for savers, increase the cost of borrowing and the possibility of loan defaults,” he told AFP.
“Mixed in with that, higher bond yields could increase the attractiveness of bonds as an investment destination, some of which will be at the expense of equities.”
Yesterday, Tokyo stocks led a collapse throughout Asia, briefly diving almost seven percent before closing down 4.7 percent.
Hong Kong lost more than five percent in its worst day since summer 2015, while Sydney and Singapore each sank three percent.
On currency markets the yen, considered a go-to unit in times of turmoil and uncertainty, climbed against the dollar.
And bitcoin continued its spiral downwards after some banks banned their customers from buying it with credit cards. The news is the latest to hit the cryptocurrency after recent crackdowns by authorities in India, South Korea, China and Russia.
The unit was down more than 20 percent to a three-month low at $5,922 – less than a third of its value near $20,000 in December.