This article is more than 1 year old

This article is more than 1 year old

A jittery, volatile week on global financial markets has burst into a frenzy of selling, triggered by heavy losses on Wall Street and comments by Donald Trump describing US interest rate rises as “crazy”.

Europe suffered heavy losses in morning trading on Thursday. The Stoxx 600 index, which tracks the biggest shares in the region, tumbled by 1.6% to its lowest level since the start of February 2017. The MSCI world stock index hit an eight-month low.

The sell-off has dragged the FTSE 100 index into a correction – the blue-chip index has now lost more than 10% of its value since May, when it traded at an all-time high of 7,903. The FTSE was down 128 points on Thursday morning, sliding 1.8% to 7,017.39.

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Asian markets were also in the red. The Nikkei index in Tokyo lost 4%, while Hong Kong’s Hang Seng was down 3.8% and the Shanghai market tumbled 5.2%.

In Australia the benchmark S&P/ASX200 index closed down 2.7%, suffering its worst one-day fall since February.

The rout was triggered by a fall of more than 800 points in the Dow Jones industrial average on Wall Street on Wednesday. The Dow and the S&P 500 each lost more than 3% – the worst drop in eight months, led by sharp declines in technology stocks. The tech-heavy Nasdaq tumbled by just over 4%.

Craig Erlam of the trading firm Oanda said: “European stocks are the latest casualty in the global sell-off that has rattled markets over the last 24 hours, as investors worry about the potential for a sharper correction on the back of rising bond yields.”

Despite a booming US economy, low inflation and low unemployment, investors are concerned about rising US interest rates. Expectations of further rate rises have pushed up bond yields, drawing money out of the stock market.

The yield on the two-year US government bond hit its highest level since 2008 on Wednesday, while the 10-year yield, which is used to price mortgages, auto loans and other debt, reached a seven-year high the previous day.

“It’s a bit of a bloodbath,” said Ed Campbell, senior portfolio manager at QMA, the asset management branch of Prudential Financial in New York. “It’s primarily the cumulative effect of interest rate moves over the past five days and news reports about trade impacting companies.”

Donald Trump has complained for weeks that the Federal Reserve has been raising interest rates too quickly and that it risks choking off economic growth.

Trump has boasted about the rise of US stock markets to record highs under his presidency and played down Wednesday’s sell-off, describing it as a long-awaited “correction”.

“Actually it’s a correction that we’ve been waiting for a long time but I really disagree with what the Fed is doing,” Trump told reporters before a political rally in Pennsylvania. “I think the Fed has gone crazy,” Trump said.

Investors have also become concerned that escalating tensions between the US and China over trade will lead to a slowdown in global demand.

CommSec (@CommSec) The Australian market has been caught up in the global sell-off amid worries that rising US long-term interest rates will impact economic growth. Keep across the day's news at https://t.co/HBM7UKKl3C #ausbiz pic.twitter.com/rJMmt3qz1V

The Chinese economy was already showing signs of weakening and US tariffs on billions of dollars worth of goods could threaten the country’s massive export industries. China’s central bank cut the reserve requirement for banks on Sunday in order to pump around $100bn into the economy.

The Chinese yuan slipped against the dollar again on Thursday as Beijing tries to mitigate the impact of US tariffs. However, it was the only currency across the region that was feeling the pressure from higher bond yields as the Australian dollar slipped under US71c.

“The yuan has already weakened significantly, to offset the tariffs announced so far,” said Alan Ruskin, Deutsche’s global head of G10 FX strategy in Sydney. “Further weakness could exacerbate concerns of a self-fulfilling flight of capital, and a loss of control.”

In commodities, oil also took a battering, with the price of Brent crude falling 2% to $81.51 a barrel, while US crude dropped 1.7% to $71.93.

In Australian trade, tech, financial and resources stocks were all under the pump. Energy and consumer staples were also more than 2% lower and only gold miners offered any relief as investors sought a safe haven. The big four banks all fell, with ANZ leading the quartet down.