Afternoon:
8°c
Fear gripping stock market
Jonathan Prynn and Nicholas Cecil10 Oct 2008
Blind panic swept through the City today as the Stock Market collapsed.
Traders were in a state of “paralytic fear” when shares fell through the floor just after the 8am
opening.
During an extraordinary seven-minute frenzy the FTSE-100 shed 10 per cent, losing £105 billion in value at a rate of £250 million a second.
The FTSE-100 regained some ground but lurched alarmingly again when Wall Street opened more than 600 points lower.
By 3.15pm the index of leading British companies stood at 4064.68, down 249.12 points or six per cent — its lowest level for more than five years.
Banks were once again the biggest fallers but the sell-off hit shares across the board, wiping £60 billion off them. Sterling and the oil price also fell.
Chancellor Alistair Darling was in Washington for a meeting of financial ministers from the G7 nations in an increasingly frantic search for an effective response to the financial crisis.
Options being looked at include a $7 trillion guarantee of all American bank deposits and worldwide financial support for banks on the lines of the £500 billion package unveiled by Gordon Brown this week. The Prime Minister urged world leaders to find “a global solution” to the crisis.
He said he was confident the bail-out would eventually help stabilise the economy. “Everybody depends on banks. We're trying to get the banks to do what they've traditionally done, to get the flow of money to businesses, to help people with their mortgages, to make sure people's savings are safe,” he said. But hopes that ministers were “winning the war” against the markets were crushed when the three-month Libor — the interest rate at which banks will lend to each — was set slightly higher at 6.285 per cent.
City commentators said banks were still terrified of lending to each other for more than a few hours, despite the Government's efforts to free up the money markets.
David Buik, of brokers BGC Partners said: “It's official. It's a bloodbath. Just pure blind panic.”
Josh Raymond, market strategist at brokers City Index, said: “It is complete panic and fear out there. What we desperately need is some calm in the market to let the dust settle, but at the moment we are in a sandstorm. The trigger point was Lehmans but every single day since then something new on a historic scale has happened.
“It's not 10 events happening over time it's 100 happening in no time at all.”
There are fears that shares could fall again next week when the major US investment banks unveil their third quarter figures.
Today's fall means that the FTSE-100 has lost almost a fifth of its value in a week, wiping £200 billion from the value of the Stock Market. It started the week just below the 5000 mark and a year ago stood at 6644.
Markets around the world were caught up in the carnage with the Dow suffering yet another crushing fall at the start of its trading day — it briefly dipped below the 8,000 mark.
But in remarkably volatile trading Wall Street then bounced back hundreds of points and after 45 minutes the Dow was down only one per cent at 8484.09.
The biggest fallers today were HBOS, down 21 per cent, and Royal Bank of Scotland, which was 17 per cent lower. They were both down almost 90 per cent since last summer.
In America the future of investment bank Morgan Stanley looked in doubt after its shares fell 25 per cent.
London investment banker Lisa Gibbons said: “When we get public confidence back things will start to rally. People are still scared. The message needs to get out there that the banks will be fine, it's just all about consumer confidence. The Government has done a hell of a lot but now we need to get the message across through the media.”
European stock markets were also caught up in the turmoil today with the Paris CAC Index and German Dax Index both down about eight per cent. Trading in Vienna and Moscow was suspended.
The new bout of chaos, which followed a quieter day yesterday, raised the prospect of another deep cut in interest rates soon. Some City economists said the Bank of England's base rate could fall to as low as 2.5 per cent next year as the authorities desperately try to stimulate the economy.
The price of a barrel of oil continued to fall on growing fears of a severe global economic downturn. A barrel of Brent crude fell almost $5 to just below $78. Some traders now believe it could fall as low as $50, only a third of the $147 all-time high reached in July.
President Bush said today: “This uncertainty has led to anxiety among our people and that is understandable. But anxiety can feed anxiety...We can solve this crisis and we will.”
Reader views (9)
Stuart from London I would like to respond to your comment "Suspend trading globally..."- Old chap, if we were to do this you would be wearing sack cloth and living in ashes which is precisely where Mr Brown and Co. wish you to be! The resolution is simple the central banks need to engineer a steep yield curve so the banks can start to profit again. This would instil confidence in each others balance sheets which may catalyse the interbank money markets. What we certainly don’t want is an over regulated nationalised financial sector environment reminiscent of the Michael Foot era. This will only lead to an impoverished and uncompetitive country. Sadly this government and the clearly incompetent FSA will strive to do just this.
- Richard, Colchester, 13/10/2008 09:34
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All of these comments really beggar belief. Such pathetic crass ignorance is almost more worrying than what is going on in the martkets!
- James, New Malden, Surrey, 10/10/2008 13:37
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all you people who continue to knock the banking investment industry try working there for a while. Then you will have a better understanding instead of thinking you do.
- Anne, London, 10/10/2008 13:36
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Short of putting a politically-appointed commissar on the board of each bank, I don't see how this government intends to carry out its threat to "punish the fat cats". More empty rhetoric and spin from a morally bankrupt administration. Brown won't be around to trouble the scorers much longer.
- Edward Thompson, Bedfordshire, 10/10/2008 12:03
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The Thatcher Revolution is now eating its own children!
- David, London UK, 10/10/2008 11:44
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It seems that the government is going to have to take even more interventionist steps, forcing the LIBOR down so that banks start lending to each other again. This underpins a lot of the confidence issues that have poured the fuel of fear on the flames of the markets.
- Adam, London, UK, 10/10/2008 11:30
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Scary stuff, but the world wide economy is in more danger from the loss of forests world wide. A UN study says that in financial terms currently the loss tots up to around US$2- US$5 trillion every year. Who is going to do something about all this? Only us!
- Helen, norwich, 10/10/2008 11:11
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And stop rewarding these guys for such catastrophic failure!
- Sharon, London, 10/10/2008 10:24
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why are we still allowing the people responsible for getting us into this mess in the first place the opportunity to continue trading and get us in to yet further trouble? Suspend trading globally, cap sensationalist reporting and we might start to get some stability back into this sad self perpetuating situation.
- Stuart, london, 10/10/2008 08:59
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