Susannah Streeter, chief investment strategist at Wealth Club, said: “The spectre of high interest rates has seen investors finally take fright, and the slide is being exacerbated by renewed Middle East conflict.
“While markets had been surprisingly stoic through the Iran war and a painful energy crunch, sentiment is now more fragile.
“Iran has fired missiles at Israel, sparking fresh worries about the inflationary impact of the war.
“Brent crude has risen sharply, up four per cent, trading above $97 a barrel as supplies in the region stay stranded.
“The prospect of borrowing costs staying higher for longer, if the prices stay elevated, has shattered the optimism which had pushed indices to record highs.
“There had been hopes that the US economy might stay in Goldilocks territory – not too hot and not too cold – but inflation concerns have reared up again, and the bears are back on the prowl.
“Friday’s US jobs report sparked a firestorm of selling, with big tech bearing the brunt of the wobble in confidence.
“Indices in Asia have been hit by the contagion of pessimism, with semiconductor stocks falling sharply. South Korea’s Kospi plunged more than eight per cent, triggering a market-wide circuit breaker.
“The slide looks set to continue, with Wall Street bracing for another sell-off and European indices also caught up in the downbeat sentiment.
“The FTSE 100 is also set to trade lower, as wary sentiment spreads and investors in the internationally focused index fret about the prospects for global growth.
“Markets are now pricing in a growing likelihood of a rate hike from the Fed this year, and potentially another next year. The Bank of England also looks on track to raise rates at least twice, given the repercussions of the Middle East crisis.”
Contact details are available to account holders.
Create a free account to get in touch with this expert.