Stock markets on cusp of ‘another crash’ warn financial analysts
IG Market Analyst Joshua Mahony asked whether the world was on the cusp of “a major selloff” as the US Federal Reserve and Bank of England (BoE) consider raising interest rates.
Mahony said artificially-low interest rates held by the Fed and BoE had acted like “steroids” and brought the markets to “heights previously unseen.”
The stark warning comes as commodity prices on the FTSE 100 slumped in recent days, with mining, oil and copper prices falling sharply.
“With the FTSE 100 tumbling over 120 points in two hours [Tuesday] morning, it is becoming clear that there is a distinct possibility of yet another crash in financial markets,” Mahony said.
“The steroids of monetary policy may have brought us to heights previously unseen in global markets, yet as the Fed and BoE begin wean us off this artificial high, we are coming to find ourselves perilously exposed to another major selloff.”
Analysts continue to express concerns about market stability after the Shanghai index fell 8.5 percent on ‘Black Monday’ in August, its biggest drop since 2007.
China’s surprise devaluation of its currency in early August was blamed for the fall, along with slowing economic growth and investor fears that the stock market had peaked.
Nearly £44 billion (US$67.3 billion) was wiped of leading FTSE 100 companies on Tuesday, with mining stocks being the biggest casualties.
This was due to oil prices falling sharply by 2.5 percent and copper hitting a two-week low.
Mining firm Glencore’s stocks fell to a new intraday low of 99.59 percent after the company cut dividends recently, prompting a loss of confidence among investors.
Anglo American plc and Antofagasta – both mining companies – saw losses of more than 6 percent.
This slump in commodity prices combined with plummeting Volkswagen shares as the emissions scandal continues to unravel prompted a bleak outlook from Mahony.
“With the [Federal Open Market Committee] meeting and Greek elections both resolving in a positive manner for financial markets and global stability, it would make sense that we saw some form of relief rally in response,” he said.
“However, the weakness seen since Thursday’s Federal Reserve decision [to hold interest rates] is highlighting a high possibility that we are due to embark on yet another major selloff in global indices.”