The London stock market pendulum swung back into negative territory yesterday as it reacted to another equity slide in Hong Kong. The FTSE 100 index fell 69.9 to 4,801.9, reversing much of the gains achieved on Wednesday, when the blue-chip index recovered from Tuesday's sell-off.
The wild swings have been causing frustration and despair to economists who argue that Britain's economic fundamentals are both in place and out of the window.
Strategists have pointed out consistently that institutional cash holdings in Britain are higher than they have been for years, interest rates are peaking and long-term inflation is edging down because of the slow trend towards European monetary convergence.
They concede that there is a shadow cast by turmoil in Hong Kong, and a longer one from inflationary pressures in the US.
But they also argue that European and US exposure to the Far East is limited and the potential for a rise in US interest rates has not been signalled.
However, that has been irrelevant this week as herd mentality has taken hold of world markets.
"We just don't know what's causing it," said Mr Philip Collins, strategist at HSBC James Capel. "There have been no great lurches in economic data in any of the developed economies. There is no particular logic at the moment. We are in a period of causeless volatility and it is probably wisest to sit and watch and wait," he said.
Certainly, yesterday's data gave no strong cause for alarm. There were no significant British figures.
In the US, the fall in unemployment was slightly greater, and more inflationary, than predicted. But new US home sales were marginally lower than the median forecasts.
It was purely the earlier 3.7 per cent reversal in Hong Kong that revived the general nervousness.
Once again Hong Kong-linked stocks in London such as HSBC and Standard Chartered were badly hit following Hang Seng's rollercoaster trading.
HSBC took another knocking as fierce trading sent it 52p down to £14.78 and Standard Chartered lost 33p to fall to 625p.
In contrast, Abbey National bucked the trend with a 15p rise at 930p but the rest of the banking sector was hit by the impact of the falling market.
NatWest shares also floundered and dropped 25p to 900p after fresh reports that the bank might spin off part of its profitable US equity operations.
Among the corporate news driving the market was BT's announcement that the windfall tax on the privatised utilities had wiped £510 million off its profits.
And there were further doubts about BT's proposed merger with US telecoms giant MCI going ahead as planned; BT lost 4 1/2p to close at 457p.
