FTSE 100 plunges as tariff turmoil enters third day but when will the selloff end?

A market bloodbath has run into a third day with no end in sight as analysts warned that the scale of disruption was one of the worst to be felt in decades.

London’s benchmark FTSE 100 share index of top blue-chip stocks fell by more than 5 per cent in Monday morning trading, following its sharp falls on Thursday and Friday last week, before clawing back a little of that ground by mid-afternoon. The panicked mood was felt across Europe, with further fresh declines for Germany’s Dax index and France’s Cac 40 as fears deepen over the global impact of Donald Trump’s tariffs.

Overnight, Asian stocks across the board sank to new lows after the US president said he will not back down on his sweeping import taxes unless countries even out their trade with America.

The FTSE 100 plunged at the tail end of last week and fell well below 8,000 in Monday morning trading. Image by PA Graphics

Besides gold and a handful of defensive stocks, there would appear to be few safe havens for investors, with no clear bottom in sight for equity markets. None of the underlying fundamentals suggest that the trade dispute will be resolved any time soon. Analysts noted that market makers were not aware of the full extent of the fallout, as current pricing is based almost entirely on estimations and assumptions.

Banks and financials were in the firing line in the UK, particularly those with a large global exposure.

Lale Akoner, global markets analyst at investment platform eToro, said: “Not everyone is fleeing growth entirely, but there’s a newfound pickiness. Some favour services over goods in consumer plays and cash-rich large caps over fragile small caps.

“In other words, quality and resilience are the name of the game. And gold is gleaming again - both as a diversifier and recession hedge.

Car exports have been in the front line of Trump's trade tariff measures.

“The UK, hit with a milder 10 per cent tariff, has shown resilience,” she added. “London’s FTSE fell less than continental indexes. Some even think Britain might snag a competitive edge - goods made in the UK face lower US tariffs than EU-made ones, potentially encouraging a bit of reshoring of production.”

In Asian markets, China’s Shanghai Composite, which tracks the movement of shares on the country’s main stock exchange, had dropped over 8 per cent, while Hong Kong's Hang Seng index plunged more than 13 per cent. The latest turmoil comes after the FTSE 100 on Friday suffered its biggest single-day decline since the start of the pandemic.

Trump said overnight on Monday that he did not want global markets to fall, but also that he was not concerned about the major sell-off, adding: “Sometimes you have to take medicine to fix something.”

The president, who spent the weekend in Florida playing golf, unveiled a range of tariffs on countries around the world last week, including a 10 per cent “baseline” rate on all the US’s trading partners which came into effect on Saturday.

In a new research note, a group of analysts for Deutsche Bank said the “markets are still reeling from the announcement of US reciprocal tariffs last Wednesday, which has seen investors price in a growing probability of a US recession”.

They noted: “The scale of the sell-off is now coming into line with some of the most aggressive drawdowns of the last decade.

“Looking to the week ahead, tariffs are clearly set to dominate the agenda, but the big question is also how other countries might retaliate. That’s something markets are watching for closely, as it was China’s retaliation that led to the fresh sell-off on Friday.”

China’s reciprocal 34 per cent tariff on US exports to China is set to come into force later this week.

Nigel Green, chief executive of financial advisory giant deVere Group, said the smartest investors were “leaning in”, not backing away, as trading screens turned red.

“History teaches us that when others panic, opportunity is created,” he added. “Savvy investors understand that volatility is part of the price you pay for superior long-term returns. Those who stay invested and act strategically during times like these are consistently the ones who reap the biggest rewards”.

Russ Mould, investment director at AJ Bell, said: “This market sell-off feels brutal because it is relentless. Often, we see one or two bad days then a rebound. We’re now on day three and the sell-off is intensifying, not dying down.

“Fundamentally, investors are worried about a big hit to corporate earnings and a massive slowdown in economic growth. The potential end to globalisation throws up more questions than answers and that uncertainty is causing havoc on the markets.

“Tariff-related deals are likely to be high up the list of catalysts to drive a recovery in markets,” he added, “and the next few weeks are going to be crucial in terms of getting a better idea of the new lay of the land.

“Negotiations may not produce rapid results so there could be prolonged uncertainty and that spells heightened market volatility. Trump will drive a hard bargain and won’t back down or soften the blow unless the US gets something big in return.”

Adrian Murphy, CEO at Glasgow-based wealth management firm Murphy Wealth, said: “It’s natural to feel uneasy - but investors should remember that the market is a tool for transferring wealth from the impatient to the patient. This moment may feel difficult, but for long-term investors, it’s akin to buying quality assets in the sales.

“The timeline for resolution is uncertain - this could turn around in weeks or take several months. But what is clear is this - staying the course, seeking advice, and tuning out short-term noise is the most effective way to protect and grow wealth through uncertainty.”

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