‘We’re in unchartered waters’ – Investors panic as Dow Jones sends world markets down

Rising inflation could lead to a hike in interest rates in the United States, with speculation sending markets crashing yesterday.

London’s FTSE 100 joined global markets by crashing into the red – with the UK’s top-flight index hitting its lowest level since late 2016, as one analyst warned that we are now in “unchartered waters”.

Alessandro Balsotti, head of asset management at JCI Capital Ltd said: “Price action is clearly driven by technical factors, tied to a brutal awakening of stock volatility.

“We are undoubtedly in uncharted waters. 

“The first instinct as an asset allocator is to take advantage of this dip to add equity exposure. 

“Also to exploit the decline in yields to further reduce duration… Ultimately I think the robust economic phase will be able to withstand the bloodshed on volatility. 

“The real danger for 2018 remains that the transition from a deflationary mentality to an inflationary one will… not be simple at all for the market and investors.” 

Today, the FTSE 100 Index sank by more than 2.5 percent – to 7,079.41 – before paring losses to fall 163.57 points to 7,167.08.

European stock futures pointed to heavy losses at the open this morning and investors are trying to make sense about what could come next, as inflation worries have pushed Wall Street’s volatility index to its highest since August 2015.

Across Europe, Germany’s Dax plummeted by 2.7 percent and the Cac 40 in France was languishing 2.1 percent lower.

Falls in Europe followed a brutal overnight sell-off in Asia and on Wall Street, where the Dow Jones Industrial Average and the S&P 500 dropped 4.6 percent and 4.1 percent respectively.

Tokyo’s Nikkei 225 Day closed down 4.7 percent, while the Hong Kong’s Hang Seng Index plunged five percent lower.

The global equity sell-off has been building since last Friday when traders became spooked by the prospect of tighter monetary policy after the US posted strong average earnings data.

The crash follows deep losses during Monday’s session when more than £27 billion was wiped off the value of London’s blue-chip stocks.

However, as the stock market fell into disarray, The White House attempted to distance the US president from the disaster.

White House spokeswoman Sarah Sanders said the American economy was experiencing “strengthening US economic growth, historically low unemployment, and increasing wages for American workers.”

An unusually quiet Donald Trump did not comment on the market, even as share prices sold off dramatically while he was touting the economy and last year’s tax cuts in a speech in Ohio.

That was in contrast to recent months when Mr Trump often talked about stocks, taking credit for the rally the market enjoyed during 2017 and the first few weeks of this year.

Gene Sperling, a top economic adviser to Democratic former presidents Bill Clinton and Barack Obama, said Mr Trump was wrong in recent months to focus so heavily on the stock market.

He said: “Even though the stock market tripled under Bill Clinton, his view was that you should always focus your policies and your public messages on bread-and-butter kitchen table issues … and that focusing on the stock market would take your eye off the real economy