FTSE 100 drops sharply as banking fears ripple through London markets

​​​Banking stocks lead FTSE 100 decline

​The FTSE 100 tumbled as much as 1.6% in its sharpest single-day drop since April, with banking stocks bearing the brunt of the selloff. Barclays shares slid more than 5% while Standard Chartered declined over 4% as credit concerns from across the Atlantic sent shockwaves through European financial markets.

​The rout came after US regional lenders Zions and Western Alliance revealed significant loan losses linked to fraudulent lending and commercial credit stress. These disclosures revived painful memories of the 2023 banking turmoil that saw Silicon Valley Bank and First Republic collapse.

​Investors fled risky assets as fears mounted that underlying weakness in regional US banks could spread to other parts of the global financial system. The speed and severity of the selloff caught many traders off guard, with trading platforms reporting elevated volumes throughout the session.

​Major European lenders including Deutsche Bank and BNP Paribas also suffered heavy losses, underscoring the interconnected nature of global banking markets. The broad-based nature of the decline suggested genuine concern rather than isolated profit-taking.

​Flight to safety drives bond rally

​As equities tumbled, investors sought refuge in government bonds, pushing gilt yields to their lowest levels since July. The UK 10-year gilt yield extended its winning streak to six consecutive days as safe-haven demand intensified throughout the trading session.

​The bond rally reflected a marked shift in market sentiment, with traders rapidly adjusting their expectations for Bank of England (BoE) policy. Money markets now price in earlier rate cuts, potentially as soon as early 2026, as growth concerns outweigh lingering inflation worries.

​Gold surged to another record high as the precious metal benefited from its traditional safe-haven status. The yellow metal's rally came alongside strength in the Japanese yen and Swiss franc, both of which advanced as investors rotated into lower-risk currencies.

​The divergence between falling equities and rising bonds highlighted genuine anxiety rather than routine market volatility. Options markets showed elevated demand for downside protection, suggesting traders expect continued turbulence ahead.

​Chancellor Reeves seeks market reassurance

​Reports emerged that Chancellor Rachel Reeves plans to use her next budget to reassure bond investors about the government's fiscal discipline. Sources indicated she aims to leave more headroom against her debt rules, signalling a commitment to prudent public finances.

​Reeves also hinted at potential measures to ease energy costs for households and businesses. These moves come as the government balances the need to support growth while maintaining credibility with financial markets after recent bond market volatility.

​The Chancellor ruled out higher taxes on banks, indicating her desire to maintain London's competitiveness as a global financial centre. This stance comes despite pressure from some quarters to raise levies on lenders enjoying higher profits from elevated interest rates.

​Her comments suggest a delicate balancing act between supporting economic growth and maintaining fiscal credibility. Market reaction to her upcoming budget will prove crucial for gilt yields and the pound in coming months.

​Corporate earnings provide bright spots

​Despite the broader market turmoil, education publisher Pearson bucked the trend with shares rising 3.6%. The company reaffirmed its full-year guidance and highlighted encouraging progress in AI-driven growth initiatives across its digital learning platforms.

​Smiths Group gained ground after announcing the sale of its Interconnect unit for £1.3 billion. The disposal allows the engineering firm to sharpen its focus on core businesses while strengthening its balance sheet through debt reduction.

​Building materials supplier SIG kept its full-year guidance unchanged despite acknowledging weak demand across European markets. The company's resilience in challenging conditions offered some reassurance about the construction sector's outlook.

​These positive corporate developments provided welcome relief amid the banking-driven selloff. However, trading volumes in individual stocks remained subdued as macro concerns dominated investor attention throughout the session.

​How to trade market volatility

1. ​Research the markets and sectors you're interested in, paying close attention to banking and financial stocks during periods of credit stress
2. ​Choose whether you want to trade or invest
3. ​Open an account with us to access markets during volatile periods
4. ​Search for the markets you want to trade on our platform or app, including indices, individual shares and safe-haven assets
5. ​Place your trade with appropriate risk management measures including stop-losses

​Market volatility creates both risks and opportunities for traders. During sharp selloffs like today's FTSE 100 decline, spread betting and CFD trading allow you to take positions on falling prices as well as rising ones. However, leveraged products carry significant risk and aren't suitable for everyone.

​For those looking to build longer-term positions during market dips, consider using share dealing to buy individual stocks or exchange-traded funds (ETFs) at potentially attractive valuations. Always ensure you understand the risks involved and never invest more than you can afford to lose.

​The current market environment underscores the importance of diversification across asset classes and geographies. While UK banks faced heavy selling, other sectors showed relative resilience, highlighting the benefits of a balanced portfolio approach.