Global selloff: Wall Street plunges, as FTSE 100 posts biggest fall in months – as it happened

The floor of the New York Stock Exchange. Photograph: Richard Drew/AP

9.16pm BST

Wall Street suffers worst fall in nearly two years

Hello again. After a day of heavy losses, the New York stock exchange has suffered its biggest one-day fall in almost two years.

The global rout that kicked off again in Asia early this morning, and ran through Europe, has sparked fresh losses on Wall Street tonight too.

The S&P 500 fell 3% Monday, the Dow Jones Industrial Average dropped more than 1,000 points, and the Nasdaq composite slid 3.4%.

That followed a 12.4% plunge for Japan’s Nikkei 225, its worst day since 1987, and the UK FTSE 100’s worst day since January.

Here’s the full story:

Danni Hewson, head of financial analysis at AJ Bell, sums up the day:

“Friday’s slump turned into a full-on meltdown following the sun around the globe but instead leaving a chill in its wake. There are plenty of theories about why today was the day which delivered this massive market sell off, but whichever one you subscribe to, you will undoubtedly be talking about the trillions wiped off market valuations for years to come.

For the FTSE 100 there was a tiny silver lining as it managed to clamber back above that psychologically important 8,000 milestone just before the close but only one company, Haleon, managed to end the day out of the sea of red.

The FTSE 250 closed almost 590 points down with five of its members finishing on the front foot as some hardy investors were likely redrawing their positions to take advantage of a spot of bargain buying.

But it was the mega caps that led the sell off, with reports of AI chip delays and Warren Buffett’s remarkably timely sale of a chunk of Berkshire Hathaway’s Apple shares adding to US recession fears and the pricing in of the anticipated flurry of rate cut activity many now think will follow.

It’s hard not to look at the headlines and succumb to panic but corrections happen and looking back since the start of the year the FTSE 350 is still in a better position than it was coming into 2024. Markets fall and they recover, the trick is to ride out the storm whilst picking up a couple of good deals along the way.”

5.32pm BST

Closing post

Time for a quick recap….

Global stock markets have tumbled again today, extending a selloff that began last week, as worries about the health of the US economy hit stocks.

Japan’s Nikkei index plunged 12%, its biggest one-day loss since 1987, as last Wednesday’s surprise rise in Japanese interest rates continues to rock the markets.

Analysts warned that the ‘yen carry trade’, in which investors borrowed cheaply in yen and bought higher-yielding assets, was unwinding, triggering margins calls and forced selling.

The Yen Carry trade explained:

For years, investors would borrow Yen at ultra low rates, such as ~0.4%, and use these Yen as a form of leverage.

Investors could convert these Yen to US Dollars or other currencies and get *almost* free margin.

Low rates made this possible.… pic.twitter.com/Gu8SPCRYyZ

— The Kobeissi Letter (@KobeissiLetter) August 5, 2024

The wide spread between rapidly rising rates in the US and other countries and negative rates in Japan made it possible.

However, as the BOJ began raising rates, this resulted in an unwinding of the carry trade.

Especially as rate cuts are beginning in the US and EU.

(4/7)

— The Kobeissi Letter (@KobeissiLetter) August 5, 2024

As a result, the Japanese Yen strengthened and the USD/JPY currency pair just hit its lowest level since December 2023.

You now receive 142 Yen for every US Dollar compared to 160 Yen for every US Dollar a few weeks ago.

But here's why this is the key point:

(5/7) pic.twitter.com/pXzfHtUdwR

— The Kobeissi Letter (@KobeissiLetter) August 5, 2024

European stock markets fell sharply too, with London’s FTSE 100 having its worst day since mid-January.

Europe’s Stoxx 600 index has hit its lowest level in six months tonight.

There were heavy early losses on Wall Street, where the Nasdaq initially slumped by 6%. But stocks have staged a small recovery, after economic data showed the US service sector was still expanding.

That helped to pull Wall Street’s fear index back from an early surge.

Money markets are now predicting the US Federal Reserve will cut US interest rates by over a percentage point by the end of this year, with some speculation that the Fed could be forced into an emergency cut.

Philip Shaw of Investec says:

The past three sessions have witnessed major panic in stock markets, prompting investors and analysts to question whether the US economy is heading for a sharp recession or whether the Fed is about to sanction an emergency cut in rates, or both.

Here’s our full report on the market mayhem:

We’ll be back tomorrow with more coverage of the markets… GW