European, American and Asian stock markets have been experiencing an unexpected free fall, as Europe’s exchanges followed the Dow Jones and posted the biggest drop since the EU referendum vote last summer.
As investors and traders absorbed the gloomy news from the Dow Jones, a 3 percent drop was seen in the Stoxx Europe 600 index in London’s early trading, and CNBC reported that every possible sector was currently in the red. At the same time, the FTSE 100 dropped by 3.5 percent, with the Financial Times reporting that financial stocks were being particularly impacted at a sector level.
The shocks came after Wall Street experienced its biggest percentage drop on record since August 2011. The Dow dropped by 1,175 points, or 4.6 percent, lower in just one day of trading, with the trend suddenly sweeping across Asia with the Japanese Nikkei down by 4.7 percent and the Hang Sent Index in Hong Kong down by 4.2 percent.
Amidst a flurry of concern, analysts sought to identify the underlying causes for the sudden plummet. Reuters identified the trigger as US wage data released several days before, showing that wages were increasing at their highest rate on record since 2009, at 2.9 percent annually. This had triggered inflation concerns and worries about rising interest rates, resulting in bond yields suddenly spiking.
CNBC’s analysis concluded that no single piece of news was responsible for tipping the balance of US indexes, but that bond market shifts could have triggered concern over rising inflation.
However, Bloomberg found that a range of factors was behind the shocks. They flagged up concerns such as the expected trajectory of US interest rates and a rapid reduction in trades.
Market analysts and economists alike have raised concerns for some time that rates of inflation in the world’s primary economies could rise above the 2-3 percent limit that central banks prefer to see in place over the longer term.
In the meantime, ABC News in Australia blamed US investors who had pushed Wall Street to unprecedented highs, boosted by zero percent interest rates set by the Reserve and over $3 trillion of quantitative easing. This flood of extra cash, they argued, had acted to distort the market and to overly-inflate stock values.
Whatever the underlying cause, all eyes are on the world markets now for their next move.