Footsie dips into bear territory as fear grips City

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Sellers took firm control of the world’s stock markets today, driving share prices down to levels not seen for more than three years and pushing London within a whisker of an official bear market.

The FTSE 100 index of leading shares fell 176.87 points, or 3%, to 5699.93. An official bear market would exist if it dropped below 5683.18, or down more than 20% on its most recent April 2015 closing high of 7103.98.

Brenda Kelly, chief market analyst at London Capital Group, said: “We’re only a hop skip and a jump from bear-market territory. To all intents and purposes, the FTSE is now in a bear market and should we close below 5700, a psychological level in itself, we may well see the 5620 level and even sub-5600 in a very short time.”

Japan’s Nikkei index entered a bear market proper today, having closed down 3.7%, with Hong Kong’s Hang Seng index not far behind, closing 3.8% lower. Japan’s prime minister Shinzo Abe (pictured) told its parliament that he would work to ensure a stable market in shares and bonds. 

India’s so-called Nifty Fifty index of the country’s leading shares and Shanghai’s Composite index are already more than 20% below their peaks of last year and well into bear territory. 

Today’s biggest casualties were again mining and oil stocks with Anglo American down 5.9%, BHP Billiton off 6% and Shell down 5.7%. Sentiment was not helped by Citigroup revising its forecast for average commodity prices in 2016 sharply down. It pushed its oil forecast down from $51 a barrel to $40 and nickel down by 22%.

The FTSE 100 has fallen on nine of the first 13 trading days of the year and has dropped by 8.5%. That has taken £13.6 billion in the value of shares in the FTSE 100 since the start of this year. 

But David Buik, analyst at Panmure Gordon, remains cautiously optimistic: “Despite the carnage in the City and Canary Wharf today, this retrenchment is a healthy adjustment, aligning itself to lower global growth. I am not a prophet of doom!”

The pound dropped as low as $1.4130 at one point, the lowest it has been since March 2009. Esther Reichelt, currency strategist at Commerzbank, said: “Nothing seems to be able to stop the collapse of sterling. It might still take a while before the slide in the pound comes to an end.”

The rout in equity markets saw investors fleeing to safe-haven investments with German bonds and US Treasury bills in demand. German 10-year bond yields fell to their lowest since last May at 0.42%, while US Treasury 10-year bill yields hit 1.96%, their lowest since last October. 

Gold rose $5.33 to $1094.8 an ounce.

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January 21, 2016 |
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