MercoPress. South Atlantic News Agency

UK and US markets tumble on fears of a global slowdown

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.

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, closing 2% lower. In the US, the three main indexes ended between 1.9% and 2.5% lower.

The falls came after figures showed Euro zone 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.

The Dow Jones Index fell 1.8%, the S&P 500 dropped 1.9% and the Nasdaq lost 2.5%, marking the worst performance for all three indexes in over three months.

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.

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.

“Typically investors expect to be compensated more to wait longer to get their money back. So a ten-year US Treasury bond is likely to pay more than a three-month US Treasury bond.

”The problem right now is that investors are willing to be paid less to wait longer - an indication that they don't have much confidence in the long term outlook for the US economy,“ says BBC New York business correspondent Michelle Fleury.

A central bank study in the US found that the bonds 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.