10th October 2014
Fears over prospects for the global economy pushed US markets lower overnight and hit the FTSE 100 and oil prices this morning.
London’s benchmark index fell 47.45 points this morning to 6,384 – its lowest point since October last year – as concerns about another eurozone recession deepened.
Christine Lagard, head of the International Monetary Fund, yesterday called on Germany – the eurozone’s largest economy – to use fiscal stimulus to stave off recession after it predicted there is a 35% to 40% change of the area falling back into recession.
‘We’re not suggesting that the eurozone is heading towards recession, but we’re saying there is a serious risk that happens if nothing is done,’ she said. ‘But we are saying also that if the right policies are decided, if both surplus and deficit countries do what they have to do, it is avoidable.’
The FTSE 100 decline follows that seen in US and Asia; yesterday the Dow Jones witnessed its biggest one-day fall of the year, closing down nearly 2% at 16,659.25
Commodities also suffered, with Brent crude falling $1.65 a barrel to $88.40, the lowest price since November 2010 and in the US, oil fell $1.92 a barrel to $83.85, its weakest level since June 2012.
Trevor Greetham, director of asset allocation at Fidelity, said central banks would be forced to delay interest rate rise and engage in another round of stimulus.
‘Stocks have sold off sharply over the last couple of weeks in response to signs of economic weakness in Germany and Chine and investor sentiment is depressed,’ he said.
‘However, with commodity prices falling this is a disinflationary shock and that means central banks will most likely trigger a rally by stepping up their stimulus operations or by signalling a further delay before raising interest rates.’
He added that this time of year often experiences volatility and that the pull back in stockmarkets gave room for a new year boost.
‘It’s normal for volatility to pick up at this time of year. It’s also normal for a temporary pull back to set equity markets up for a period of stronger returns going into the new year,’ said Greetham.
‘We are overweight equities in our multi-asset funds and we’ve used recent market weakness to add to that position.’