Global markets fall amid slowdown fears

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Markets in the UK and US have tumbled with analysts attributing the drop to growing fears of a global slowdown.

The FTSE 100 saw its worst day of trading this year, eventually closing 2% lower. In the US, the three main indexes fell between 1.6% and 2%.

The falls came after figures showed eurozone manufacturing growing at its weakest pace in five years in March.

Combined with the Federal Reserve's cautious tone on interest rates earlier this week, investors took fright.

On Wednesday, the US central bank said that it did not expect to raise interest rates for the rest of the year amid slower economic growth.

Diane Swonk, chief economist for Grant Thornton, said news that manufacturing in Germany - seen as the powerhouse of Europe - contracted last month, coupled with the continuing uncertainty over Brexit and the decision to put US interest rate rises on hold had combined to make investors nervous.

“There's a flurry of information which has raised risks to the downside. All that is finally hitting the market with a reality check,” she said.

She added financial markets were “not as nuanced as people would like”, and tended to overreact to both good and bad news.

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Meanwhile, an unusual move in the US bond markets also made investors fearful. The bonds, known as Treasuries in the US, are issued as a form of borrowing by governments to fund spending.

For the first time in over 10 years, the rate of return (yield) on three-month US bonds rose above 10-year yields, something which is seen as an indicator that a recession could be coming.

Skip Twitter post by @BizFleury

Uh oh. Gap between 3 month and 10 year US Treasury yield just inverted for the first time since 2007. An inversion is seen as a powerful signal of recession. Pretty much every recession has been preceded by an inverted yield curve per @sffed

— Michelle Fleury (@BizFleury) March 22, 2019

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End of Twitter post by @BizFleury

A central bank study in the US found that the bond markets had successfully foreshadowed all five US recessions since 1955.

But Kristina Hooper, chief global market strategist at Invesco, said she did not think a US recession was imminent.

“Globally there are more concerns. I don't think this is a cause for panic,” she added.