Stocks in Europe have slumped to their lowest level since 2020 and government borrowing costs around the world have risen sharply, as mounting recession fears and another spike in tensions between Russia and the West sparked a sell-off on global markets.
The Chinese yuan hit a record low versus the surging dollar and government borrowing costs in the US, UK and eurozone reached their highest levels in more than a decade in the latest bout of market turbulence.
Huge price moves on Wednesday forced the Bank of England to step in and address the "dysfunctional" gilts market, buying Government debt in an attempt to bring down borrowing costs.
Stocks and bonds have endured heavy losses in recent weeks as worries grow over the economic impact of aggressive central bank action to tame inflation. Investor sentiment has also been dented this week by huge leaks in the Nord Stream 1 and 2 gas pipelines from Russia, which European leaders have blamed on sabotage.
As gloom descended again on global markets on Wednesday, the Stoxx 600 Europe – which tracks the biggest stocks in the region including the UK – slipped 1.7pc to the lowest since late 2020 after a drop on Wall Street and in Asia overnight. It is the fifth straight day of declines.
The FTSE 100 fell a further 2pc to hit the lowest level since spring 2021 as the IMF and Moody’s sounded the latest warnings on Kwasi Kwarteng’s mini-Budget. London’s blue-chip index has lost a quarter of its value this year while eurozone shares have plunged 36pc.
Peter Garnry, head of equity strategy at Saxo Bank, said: “Market sentiment tipped sharply lower late yesterday after an earlier rally attempt in the US session on the news of sabotage of the Nord Stream pipelines in the Baltic Sea.”
The red-hot dollar continues to rally to record highs on currency markets while in bonds, the benchmark 10-year Treasury yield in the US hit 4pc - levels last seen in 2010.
In the UK, the 10-year gilt yield was steady at just above 4.5pc before the Bank of England's intervention but its surge in the last month – a 1.9 percentage point increase – is double the rise seen in borrowing costs in the US and most of the eurozone. The 10-year gilt yield fell to 4.2 after the Bank of England announced it would buy bonds.
City analysts warned of more volatility on global markets ahead, as investors brace for an uncertain winter for the world economy.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said: “We expect markets to remain volatile in the months ahead, as uncertainty continues around the peak for interest rates, the trough for earnings, and the outlook for energy prices."
He said global bonds are in bear market territory - a 20pc decline from their peak - for the first time in over 70 years.