The global stock market rout of recent weeks has resumed after US efforts to bolster confidence in the response to the coronavirus crisis only added to the sense of panic among investors.
America’s central bank, the Federal Reserve, slashed its benchmark interest rate to near zero overnight in an attempt to help the US economy come through the COVID-19 outbreak.
The Fed also said it would expand its balance sheet by at least $700bn (£565bn) in the coming weeks to help stabilise market confidence.
After falls in Asia, the FTSE 100 in the UK was trading more than 400 points or 8% down by lunchtime at 4,926 though it closed 4% down at 5,151.
Airlines and holiday firms led the fallers following a slew of announcements relating to the grounding of planes and warnings that the industry will need the support of governments globally to survive the crisis intact.
IAG, the owner of British Airways, was 28% down at one stage while holiday operator TUI saw its shares plunge by more than 30% after it warned the “vast majority” of its holidays were being cancelled.
The CAC in France and German DAX were both more than 10% lower mid-session but also fought back.
Trading in US stock markets was suspended shortly after the opening bell when values on the S&P 500 and Dow Jones Industrial Average tumbled by more than 7% – triggering so-called circuit breakers to ease volatility.
Both later resumed – 10% and 12% down respectively – but losses later eased too.
Sky’s business presenter Ian King said the US Fed move was “very, very unexpected timing but the markets were pricing in another rate cut”.
He added: “I think it has just spooked the markets, made people think: crikey, what does the Fed know that we don’t?
“Accordingly, you’ve seen this monstrous sell-off in all asset classes, bonds excepted.”
Brent crude oil was 10% down at just $30 per barrel given a slump in demand and Saudi threats to pump at record levels from next month in a bid to punish Russia for refusing to sign up to steep output cuts to support prices.
Financial analysts see no end to the sell-off in sight as the news on coronavirus gets worse on a daily basis as a growing number of companies cut or suspend operations.
Vauxhall’s owner, PSA, said it was to temporarily suspend output at all its factories, including Ellesmere Port and Luton in the UK, this week until 27 March at least,
It cited efforts to combat the spread of COVID-19 and supply issues alongside the collapse in the car market globally.
Central banks are facing pressure to bolster their measures in support of business.
Andrew Bailey, who replaced Mark Carney as Bank of England governor on Monday, said the bank was “very keen” to ensure short-term damage to the UK economy did not permanently impair longer-term growth.
“That’s why you saw prompt action last week, that’s why you will see prompt action again when we need to take it, and the public can be assured of that,” he said.
Mr Bailey said a move on Sunday by six central banks, including the BoE, to inject cheap US dollar funds to the financial system was in response to some “pretty big dislocations” in markets.
“We’re going to see how that works its way through the markets today (and) in the coming days to see what the effect is, but I would emphasise that this is strong coordination among central banks.”
Vishnu Varathan, a senior economist at Mizuho Bank, said: “Ironically, markets might have perceived the Fed’s response as panic, feeding into its own fears.
“Despite whipping out the big guns (and jumping the gun) the Fed appears to lack the silver bullets; falling short of being
the decisive backstop for markets.”
China said industrial output had contracted at its sharpest pace in 30 years during the first two months of the year.
It has seen the bulk of infections and deaths as a result of COVID-19 and is just starting to get its outbreak under control, following months of lockdown in many of its cities.
Earlier, US President Donald Trump said the Fed’s decision, which cuts the rate by a full percentage point to a target range of 0% to 0.25%, was “very good news”.
The US central bank said that rate would remain until it feels confident the economy has weathered recent events.
It has also dropped its requirements that banks hold cash reserves in another move to encourage lending.
Other central banks around the world, including the Bank of England, have said they would co-ordinate to ease liquidity in an attempt to blunt the economic impact of the virus.
A statement from the outgoing governor of the Bank of England, Mark Carney, and his successor Andrew Bailey on Sunday said such action would “improve global liquidity by lowering the price and extending the maximum term of US dollar lending operations”.
They added: “These new operations will help ease strains in global funding markets, thereby supporting the supply of credit to households and businesses.”