'A perfect storm': European stocks plummeted as global market volatility spiked

Markets Insider
  • Wall Street’s Monday crash has spread to Europe.
  • Germany’s DAX, France’s CAC 40, and the broad Euro Stoxx 50 index all lost more than 3% of their value before paring their losses a little by the close.
  • US stocks swung wildly in early trading: the Dow Jones fell more than 2%, before climbing to a gain of 1.5%. It then dropped again as the day progressed.
  • There are concerns that the Federal Reserve may be forced to tighten monetary policy faster than had been forecast.

LONDON – The rout in equity prices hit Europe on Tuesday, with major indexes across the continent taking big losses.

Estimates show the rout wiped as much as $US4 trillion from global stock markets.Germany’s DAX,France’s CAC 40, Britain’s FTSE 100, and the broad Euro Stoxx 50 index all fell by more than 3% at the open. By the European close, major indexes on the continent were still down by between 2% and 3%.

The drop followed a pummelling session for US stocks on Monday.The Dow Jones industrial average fell by almost 1,200 points, a record single-day fall in points terms. The US’s two other major indexes, the S&P 500 and the Nasdaq, dropped 4.1% and 3.8% respectively.

The losses sparked panic in Asian markets overnight, which then spread to Europe. The crashes are driven by concerns that US inflation could force the US Federal Reserve to tighten monetary policy faster than had been forecast. Fears of easy money being taken off the table are causing some to view stocks as overvalued.

While the European open was messy, things calmed a little as the morning progressed, and stabilised further as the day went on.

Here’s the scoreboard at the close:

Screen Shot 2018 02 06 at 16.45.55Investing.com

Speaking about the crash on Tuesday morning, Mike van Dulken, the head of research at Accendo Markets, said:

“Whilst the roots and drivers are sure to be discussed for days, it looks to emanate from a perfect 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.”

In the USA, stocks are swinging wildly on Tuesday, with the Dow Jones industrial average seesawing between gains and losses. After opening down 208 points, the Dow surged to a gain of more than 250 points before rolling back over into negative territory.

Market fears reflect the view of Karen Ward, the chief European strategist at JPMorgan Asset Management, who told Business Insider in an interview in January that the biggest challenge to the markets was inflation rising more quickly than expected.

“Thoughts will turn towards a much less risk-favourable environment quite quickly,” should inflation rise faster than expected, Ward told Business Insider.

Business Insider has been covering every angle of the sell-off:

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