FTSE 100 rebounds after Wall Street comeback but jitters remain

DAX and CAC DOWN: European markets open 3% down as global financial crash looms

London's blue chip index ended the day down 2.6% or 193.58 points at 7,414.4 points - marking its lowest close since April 2017 - a decline mirrored by both the German Dax and French Cac 40 - which each dropped 2.3%.

The pan-European FTSEurofirst 300 index rose 2.02 percent and MSCI's gauge of stocks across the globe gained 0.40 percent. However analysts say that in the short term investors should be prepared for choppier stock markets.

World stock markets have nosedived for a fourth day running, having seen $US4 trillion ($A5.6 trillion) wiped off from what just eight days ago had been record high values.

Heading into the afternoon, the Dow Jones Industrial Average had fallen 59.07 points, or 0.24 percent, to 24,286.68, the S&P 500 lost 13.09 points, or 0.49 per cent, to 2,635.85 and the Nasdaq Composite dropped 2.63 points, or 0.04 per cent, to 6,964.90.

Falls in Europe followed a brutal overnight sell-off in Asia and on Wall Street, where the Dow Jones Industrial Average and the S&P 500 dropped 4.6pc and 4.1pc respectively.

Global markets followed suit last night, with Japan's Nikkei 225 closing 4.7% lower, while Hong Kong's Hang Seng was down 5.1%.

"The severe sell-off that took place in the U.S. on Friday spilled over to Asia last night, and the fallout is being felt in this part of the world".

A steep spike in yields last Friday sparked the initial Wall Street rout, forcing sales by a host of highly leveraged funds, which ramped up volatility and drove yet more selling.

Strategists also point out that the improving global economic outlook is a positive for stocks overall.

Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange

"Whilst the roots and drivers are sure to be discussed for days, it looks to emanate from a ideal storm of reasons including, but not restricted to, a strong 2017 rally extending into January, low volatility, low interest rates, over-optimism and complacency, over-leverage and financial engineering, all coming to a head as investors react to the possibility of higher/faster interest rates rises with bond yields creeping higher to jeopardise the current market situation".

The UK's FTSE 100 dropped 3.5% in opening trading, with every stock in negative territory, as falls in USA and Asian markets posted overnight spilled over into European markets.

Laith Khalaf, a senior analyst, at Hargreaves Lansdown, said: "This sell-off is the storm after the calm, as we have enjoyed an extended period of plain sailing in markets, which have crunched happily upwards for the last couple of years". The crashes are driven by concerns that US inflation could force the US Federal Reserve to tighten monetary policy faster than had been forecast.

Any major fall in share price will soon be reflected in worldwide, and United Kingdom economic health.

"Global markets are anxious the inflation genie may be out of the bottle, after U.S. wage growth jumped up unexpectedly last week".

The U.S. dollar rose against most major currencies amid the gains on Wall Street.

"What we have seen is perhaps the greatest sign of real health in markets for a long time".

"Occasional corrections are part and parcel of a functioning stock market, deflating pockets of exuberance, and allowing new investors to buy in at lower levels".

In the retal sector, Tesco suffered limited damages, down 0.8 percent, after it was reported it faced Britain's largest equal pay claim with a possible compensation bill of up to 4 billion pounds.

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