FTSE bounces back after Chinese turmoil hits markets

A general view inside the London Stock Exchange  Photo: Anthony Devlin/PA Wire
A general view inside the London Stock Exchange Photo: Anthony Devlin/PA Wire
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The FTSE 100 enjoyed one of its biggest one-day rises in years after China cut interest rates in a bid to calm global markets.

Investors were delighted to see London’s top flight index bounce back, after £74bn was wiped off the index in the previous session.

The FTSE 100 closed up 182 points, or 3.09 per cent, adding about £47bn back on to the value of the UK’s top 100 listed companies. It meant the blue-chip share index had recovered most of the losses suffered on Monday when it dived by 4.7 per cent - a slump that came at the end of 10 days in a row of declines in the FTSE 100’s worst losing streak since 2003.

This is the index’s biggest one-day rise since September 7 2011, when it climbed by 3.14 per cent. Investors have been alarmed by the continuing falls in the Chinese stock market - which saw its worst fall for eight years at the start of the week and plunged by a further 7.6 per cent overnight. But the London market bounced back in early trading in the latest session, with investors hunting bargain-priced stocks and the panic that had seen trading screens turn red the day before ebbed away.

There was further cheer when China’s central bank slashed interest rates by 0.25 percentage points - the fifth cut in nine months - in an effort to shore up its economic growth. It also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold.

China’s moves reassured global markets which have been rocked in recent weeks by the slowdown in the world’s second biggest economy and the depreciation of the yuan - as well as plunging commodity prices. London’s top-flight remains in “correction” territory. It has fallen from its all-time closing high of 7104 in April. But almost all top-flight shares were ahead, with the index pulled higher by a recovery in commodities stocks which have been pounded by the falls in metal prices caused by China’s woes.

Anna Stupnytska, global economist at Fidelity Worldwide Investment, said: “It’s clear that China growth continues slowing and that policy action year to date has not been sufficient to prevent the industrial collapse.

“Today’s move to cut interest rates and RRR [reserve requirement ratio] is certainly a step in the right direction.

“But while this might help sentiment, it’s not enough to reverse the ongoing slowdown in China’s growth. Some stabilisation in activity is probably the best case scenario. A sharp rebound is unlikely.”

The volatility in global markets has prompted speculation that rate-setters on the Bank of England’s Monetary Policy Committee (MPC) may want to push back the timing of any interest rate hike.

Investors took heart after China’s central bank cut interest rates and simultaneously relaxed reserve requirements for the second time in two months, cranking up support for a stuttering economy and its plunging stock market.

“The initial reaction in the equity market was aggressive as many expected that this news would be out at the weekend,” Guardian Stockbrokers’ director of trading, Atif Latif, said. “It does however highlight that the economy in China continues to see downward pressures, but there are measures in place that will stem the flow.”

Paul Hollingsworth, of Capital Economics, said: “Although the UK has clearly been caught up in the recent meltdown in global financial markets, we doubt that it will knock the economic recovery off course.”