Wipeout on Wall Street as shares around world tumble

IMF warns over trade war, Brexit and debt Dow Jones in third biggest points fall ever £200bn wiped off FTSE 100 since its peak in May

SHARES in Wall Street suffered their biggest falls in months last night as investors fretted about interest rates, inflation and the global economy.

The Dow Jones Industrial Average index plummeted by more than 800 points – one of the worst sell-offs since February.

Apple and Amazon had their worst day in two years.

Traders rushed to sell technology stocks that have seen massive rises this year and piled into safer bets such as utilities and consumer staple firms.

The S&P 500 index also lurched into its longest losing streak in two years, while London’s FTSE 100 sank to a six-month low.

The turmoil came amid fears that sharply-rising interest rates in the United States, set by the Federal Reserve, would put the brakes on the country’s expanding economy.

Higher rates make borrowing more expensive for governments, businesses and consumers. There are also concerns about ongoing trade disputes and the International Monetary Fund has sounded the alarm about ‘dangerous undercurrents’ – including £138trillion of global debt.

Alec Young, a director at FTSE Russell, said investors feared that rising interest rates and growing expenses would start eating into company profits, which had been boosted by tax cuts introduced by Donald Trump.

He added: ‘The tax cuts juiced earnings this year and that’s not sustainable. The market’s starting to say that the glass may be half empty.’

Michael Farr, of Farr, Miller & Washington, added: ‘Stocks are spooked by higher rates and maybe some inflation that seems to be creeping in. That suggests the Fed will keep raising rates, and that’s taking the wind out of the stocks that have done the most.’

Markets in the US have done better than expected this year, setting a series of new records over the summer.

However, after that stretch of relative calm, they have suffered sharp losses over the past week as bond yields have risen. On most days they have recovered some of their losses but that did not happen on Wednesday, when stocks fell further.’

Billions of dollars were wiped off the value of America’s biggest technology companies, with Apple, Amazon, Netflix, Microsoft and Alphabet, Google’s parent company, among the big losers.

Gina Martin Adams, chief

‘Sounded the alarm’

equity strategist for Bloomberg Intelligence, said this was partly because of fears these companies could face higher costs. She said: ‘Amazon recently announced they were increasing wages, Facebook is spending on security.’

David Madden, a market analyst at CMC Markets UK, said: ‘Continued concerns about the political situation in Italy, and the relatively high yields on US government bonds, and the strained global trading relations have all contributed to the decline in European stocks.’

SHARES around the world tumbled yesterday as the International Monetary Fund warned ‘dangerous undercurrents’ threaten the global economy.

The FTSE 100 index fell another 91.85 points in London to a six-month low of 7145.74, while the Dow Jones Industrial Average was down more than 800 points in New York.

The Footsie sell-off took losses since its all-time high in May to 9.6pc.

The slump has wiped nearly £200bn off the value of Britain’s leading companies in a blow to millions of savers with money tied up in the stock market.

The sell-off in London was echoed in Europe and the United States where the S&P 500 clocked up its longest losing streak since Donald Trump became president. It came as the IMF delivered a gloomy assessment of the outlook for the global economy.

As well as sounding the alarm over a no-deal Brexit, and its threat to the stability of the world economy, the Fund warned that trade tensions are growing and that global debt is at a record high of £138trillion.

It is feared that, against this backdrop, rising interest rates in the US could bring stock markets crashing down. The IMF, whose autumn meetings with the World Bank are taking place on the Indonesian island of Bali this week, said: ‘Near-term risks to global financial stability have increased somewhat.

‘Looking ahead, clouds appear on the horizon. Support for multilateralism has been waning, a dangerous undercurrent that may undermine confidence in policymakers’ ability to respond to future crises.’

It said that despite mounting tensions over trade – such as between China and the US – and rising interest rates in parts of the West, ‘global financial markets have remained buoyant and appear complacent’. It said there could be a sudden sharp tightening in financial conditions that could lead to a ‘broad-based correction’ on the markets.

Turning to Brexit, IMF capital markets director Tobias Adrian warned against the UK leaving without a deal.

‘Financial stability risks are reduced the more prepared the financial sector is and the closer the co-operation between the European and UK authorities,’ he said.

‘The private sector should be getting prepared and the authorities should be engaged with the private sector and make clear what the contingencies are during a hard Brexit.’

And IMF managing director Christine Lagarde called on global leaders to work together to de-escalate trade disputes. She said: ‘We need to join hands to fix and modernise the global trade system, not destroy it.

‘We know that trade has helped transform our world by boosting productivity, spreading new technologies and making products more available.

‘And yet we also know that some workers and some communities are heavily affected by the human cost of disruption whether from technology or trade, or both.’

Analysts said US markets have performed particularly well in recent months, in part because of President Trump’s tax cuts. But there are fears that this could go into reverse as the US Federal Reserve raises interest rates to keep a lid on inflation and stop the economy overheating.

Steen Jakobsen, chief investment officer at Denmark’s Saxo Bank, said: ‘The US market is on its own. So what the IMF is doing is pointing out that, if you exclude the US, the world is already moving to the brink. Whether we go beyond the brink I think is more an issue of how fast the Fed, and how insistent the Fed is, on having higher rates.’

The Dow Jones Industrial Average fell 3.2pc in New York last night while the Nasdaq was down 4.4pc. The S&P 500 fell 3.3pc.

In Europe, the German market was down 2.2pc while the main French benchmark fell 2.1pc and Italy slid 1.7pc amid ongoing fears over the health of its banks and the government’s plans for a debt-fuelled spending spree.