Shares, bonds, commodities such as oil, even gold and its supposed digital rival Bitcoin: all dropped in unison on Friday as fears of a global recession, not to mention Vladimir Putin’s escalation of the war in Ukraine, unnerved investors everywhere.
The American dollar, still the world’s ultimate “safe haven” asset, was about the only thing to gain; other currencies, especially the pound as investors gave the thumbs down to Kwasi Kwarteng’s mini-Budget, lost value against the greenback.
This is how the day played out.
The most dramatic development yesterday was the crash in the value of sterling. At the start the day it bought $1.125 but had fallen to $1.116 at 9.30am, about when Mr Kwarteng started to speak. It fell sharply over the afternoon to a low of $1.089 at 5.30pm before a slight recovery to $1.09 – a fall of 3.1pc.
A month ago, a pound was worth $1.18, down from $1.37 in mid-January and $1.44 at its post-Brexit-vote peak in April 2018. It has declined 24pc since then.
Until yesterday many commentators saw the pound’s weakness as a consequence of the strength of the dollar rather than a problem with the British currency, because other world currencies had also lost value against the greenback.
Sterling’s fall accelerated yesterday while the decline in the euro and yen against the dollar was more muted, although its weakness was undoubtedly driven in part by the global turmoil. The euro fell by 1.4pc on Friday and the yen by less than 1pc.
The FTSE 100 briefly dipped below the psychologically important level of 7000 on Friday. After starting the day at 7155, it fell steadily all morning to 6994 at noon before recovering slightly to close at 7019, a fall of just under 2pc.
The blue chip index is dominated by international companies, but the more domestically focused FTSE 250 fell by almost the same amount. Normally a falling pound would prop up multinational stocks relative to domestic ones because their overseas earnings become more valuable, but this relationship broke down on Budget day.
This echoes what happened the day after Britain voted for Brexit, when panicking investors sold everything and forgot that the falling value of the pound – it crashed severely that day – would be good for the FTSE 100’s companies. Only in the subsequent days did the penny drop, something that may be repeated next week if the pound fails to recover.
Other countries’ stock markets also fell severely. On Wall Street the Dow Jones fell below 30,000 to close 1.6pc lower at 29,590. The Nasdaq market for technology stocks lost 1.8pc. In France the benchmark CAC 40 fell by just 0.2pc, however, while in Germany, the Dax lost 2pc. The pan-European Stoxx 600 index dropped by 2.3pc.
Bob Schwartz, senior economist at Oxford Economics, the consultancy, said: “Financial markets are throwing in the towel, now fully convinced the Fed [America’s Federal Reserve] will do whatever it takes to curb inflation, including bringing on a recession. Stock prices plunged to the lowest level of the year on Friday and [bond] yields staged another leap upward in anticipation of a string of additional rate hikes.”
Fears of a recession caused the oil price to fall by 4pc to $86.71 on Friday, compared with highs of about $130 after the Russian invasion of Ukraine.
This was dwarfed by the 10.2pc fall in the price of iron ore – another key economic bellwether.
Gilts, or British government bonds, also slumped on Friday as the biggest losers in a wider European sell-off. One 10-year issue fell from £106.40 to £103.50, a decline of 2.7pc, and a German equivalent lost a more modest 0.5pc to Eu97.2 from Eu97.7. American bonds did better, again reflecting America’s safe haven status: one 10-year issue gained a fraction from $92.02 to $92.10.
Gold is normally the asset that investors turn to when everything else is falling but not on Friday: it fell by 1.7pc from $1,673 to $1,644.
Bitcoin, touted by its proponents as a digital replacement for gold thanks to its scarcity, lost a similar 1.8pc from $19,400 to $19,094.