Stock market sell-off: FTSE 100 sinks amid turmoil following rout of Japan’s Nikkei

Analysts said they feared the US Federal Reserve may have made a mistake by not cutting interest rates, and it might now be too late to hold off a recession.

The Nikkei 225 lost 13 per cent on Monday to hit a seven-month low, in a day of trading that was worse than at any time during the 2008 global financial crisis.

The Japanese benchmark index fell 4,451 points to 31,458 on Monday.

Chris Beauchamp, chief market analyst at online trading platform IG, said: “Markets are in absolute turmoil thanks to the Nikkei 225’s biggest one-day drop since 1987, which has wiped out the index’s gains for the year.”

He said: “This is a perfect demonstration of what happens when everyone tries to sell at once.

"Such moves don’t stop in a single day and we likely have a summer of volatility ahead of us, particularly as we await developments in the Middle East.”

Oil prices have also slipped. Brent crude prices were down 1 per cent to 76.04 US dollars on Monday morning, its lowest point this year.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: “The FTSE 100 has opened down as the US sneeze risks becoming a cold. Exporters bore the brunt of the sell-off as contagion from last week’s poor employment and manufacturing data in the States put recessionary fears back on the table.

"The discussion around September’s rate decision at the Federal Reserve Bank has moved from if to how much, with the odds now moving in favour of a half point cut.”

Richard Hunter, Head of Markets at interactive investor, commented: “US markets endured another bruising session as a feeble jobs report escalated recessionary fears, resulting in moments of mayhem elsewhere.”

He added: “On the other hand, and notwithstanding any further shocks, to have let some air out of the tyres after a recent breathless run (on global stock markets) is usually seen as a healthy corrective measure. There are few reasons at this precise moment to signal an end to the bull market, even if investor sentiment is understandably cautious.”

Mr Hunter said the torrid opening which UK markets encountered following these global waves of unease was of “little surprise”.

He added: “Half-hearted moves into defensive stocks provided brief respite for the likes of Unilever, Reckitt Benckiser and GlaxoSmithKline, but overall the markdown was widespread.

"The FTSE250 also felt the selling pressure...It remains to be seen whether these reactions are overdone, as can often be the case until the negative momentum subsides, and whether there is also something of a buying opportunity emerging given that markets are prone to exaggeration in both directions on the back of a marked change of sentiment.”