The FTSE 100 Index today looked set to open higher after yesterday’s stock market panic wiped £93bn (€120bn) from the value of London’s leading shares.
Traders said a late rally on Wall Street and a bigger-than-expected cut in Australian interest rates offered some respite for beleaguered investors.
In a dramatic session yesterday, the Footsie slumped 7.8% – its largest one-day percentage decline since the aftermath of Black Monday in October 1987. It is expected to recover around 100 points of last night’s 391.1 points fall when the London market reopens today.
The Dow Jones Industrial Average was down more than 800 points at one point last night, but recovered in the final 90 minutes of the session to finish down 370 points at 9,955.50 – still its first close below 10,000 since 2004.
Traders were betting that central banks will react to the crisis by cutting interest rates. This hope was fuelled after Australia cut its base rate by one percentage point, lifting Asian markets as a result.
CMC Markets trader Matt Buckland said: “The main indices are all set to open higher as there is undoubtedly the potential to do some cherry picking of keenly priced stocks in the short term, but looking back at the big falls of 1987 the first rally was certainly very brief and this is something to be mindful of.”
Yesterday’s bloodbath came as governments rushed to prop up banks across Europe, sparking fear across global markets.
In London, investors were unnerved by reports that the British government could take big stakes in banks – effectively part-nationalisation – to strengthen their finances. Halifax Bank of Scotland and Royal Bank of Scotland both slumped 20%, while Barclays lost 15%.
The London market was also hit hard by hefty falls from heavily-weighted mining stocks after experts warned that the sector’s earnings could almost halve this year.
Hargreaves Lansdown’s head of equity analysis Richard Hunter also warned of the wider effects of the money-market freeze paralysing the banking system.
“The very fact that banks are unwilling to lend to each other – on the basis that the other counterparty may not even be in existence at the end of the loan - necessarily means that they will be equally unwilling to lend to companies, or indeed individuals.
“Stability must return to the system first of all, before markets return to anything like their previous levels of activity.”