Why are the financial markets suddenly plummeting?

European, American, and Asian stock markets have all experienced an unexpected free fall. Europe’s exchanges followed the Dow Jones and posted the biggest drop since the EU referendum vote last summer.

Investors and traders have absorbed the gloomy news from the Dow Jones. In London’s early trading, a 3 percent drop was seen in the Stoxx Europe 600 index, and CNBC reported that every possible sector is currently in the red. At the same time, the Financial Times reported that financial stocks were being particularly impacted at a sector level, with the FTSE 100 dropping by 3.5 percent.

The shocks came after Wall Street experienced its biggest percentage drop on record since August 2011. In just one day of trading, the Dow dropped by 1,175 points, or 4.6 percent. The trend suddenly swept across Asia, with the Japanese Nikkei down by 4.7 percent and the Hang Sent Index in Hong Kong down by 4.2 percent.

Amidst a flurry of concern, analysts sought to identify the underlying causes for the sudden plummet. US wage data released several days before, showing that wages were increasing at their highest rate on record since 2009, triggered inflation concerns and worries about rising interest rates, resulting in bond yields suddenly spiking. Reuters identified this as the trigger for the sudden drop.

However, CNBC’s analysis concluded that no single piece of news was responsible for tipping the balance of US indexes, but that bond market shifts could have triggered concern over rising inflation. Bloomberg found that a range of factors were behind the shocks.

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