Wall Street sell-off pushes FTSE 100 into cor­rec­tion

The Daily Telegraph - Business - - Front Page - By Tom Rees in Lon­don and James Tit­comb in San Fran­cisco

THE FTSE 100 slumped into cor­rec­tion ter­ri­tory yes­ter­day as the stock mar­ket sell-off sparked by fears of ris­ing in­ter­est rates in the US spread around the globe.

In New York, the bench­mark Dow Jones ex­tended the 800 plus-point fall it recorded on Wed­nes­day night, fall­ing an­other 545.9 points to close at 25,053.8, down 5pc in two days.

Bri­tain’s blue-chip FTSE 100 in­dex had tum­bled 1.9pc to close at 7,006.9 as Lon­don took its cue from Wall Street to hit a fresh six-month low. It is the in­dex’s sec­ond cor­rec­tion of 2018 – a fall of more than 10pc from an in­dex’s 52-week high. The Stoxx Europe 600 in­dex, which tracks the top stocks across the con­ti­nent, dropped to its low­est level in 20 months.

Fears that the Fed­eral Re­serve will be forced to rein in an over­heat­ing Amer­i­can econ­omy have been fu­elled by strength­en­ing growth and in­fla­tion in­di­ca­tors in the States.

The bench­mark US 10-year Trea­sury yield has hit its high­est level in seven years amid in­vestor ex­pec­ta­tions that the cen­tral bank will main­tain a brisk pace of in­ter­est rate rises well into 2019. The US pres­i­dent dou­bled down on his crit­i­cism of the Fed as the S&P 500’s slide spilt over into a sixth straight day, the broader in­dex’s long­est los­ing streak dur­ing his pres­i­dency. Don­ald Trump warned that the cen­tral bank’s pol­icy tight­en­ing is “far too strin­gent, far too fast”.

Mar­ket an­a­lysts also in part blamed this week’s tech-led sell-off on more signs of cor­po­rate earn­ings in the US be­ing im­pacted by Mr Trump’s trade war. Be­fore the week’s sud­den plunge in US tech giants’ share prices, it had be­gun to feel as if the only way was up. The tech-heavy Nas­daq in­dex, which sur­passed its dot­com-bub­ble peak only three years ago, had risen more than 60pc since then, beat­ing the wider stock mar­ket boom.

Within that, the world’s big­gest tech com­pa­nies had done even bet­ter. The FANG+ In­dex, a group that in­cludes the big five of Face­book, Ama­zon, Ap­ple, Net­flix and Google’s owner Al­pha­bet, as well as Alibaba, Baidu, Twit­ter, Tesla and Nvidia, had jumped by a fifth this year alone. Ap­ple and Ama­zon had both hit val­u­a­tions of more than one tril­lion dol­lars, and the in­dus­try’s moguls had be­come the world’s rich­est men: six of the 10 most valu­able bil­lion­aires made their for­tunes in tech.

This week’s mar­ket panic, though, hit Sil­i­con Val­ley harder than most. Money be­ing pulled out of eq­uity mar­kets tends to have an out­sized ef­fect on tech com­pa­nies, since they have been the most re­li­able source of re­turns in the low-in­ter­est-rate world. Much of the post-fi­nan­cial cri­sis tech boom has been driven by yield-hun­gry in­sti­tu­tional cash flow­ing into Sil­i­con Val­ley ven­ture cap­i­tal. Ris­ing gov­ern­ment bond yields mean that is not guar­an­teed to con­tinue.

Tech com­pa­nies that rely on debt were par­tic­u­larly ex­posed by the plunge on the prospect that it might be harder to raise funds in fu­ture.

Traders on the floor of the New York Stock Ex­change yes­ter­day. The mar­ket’s de­cline was set off by a sharp drop in bond prices and in­crease in yields

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