The FTSE 100 index plunged last week, registering a weekly loss of over 5.5%, making it the single worst weekly drop in more than two years.
European markets were similarly down with the French CAC 40 index closing more than 3.5% lower,and the German DAX 30 down 1.5% on the week.
The big falls reflect fresh investor concerns over the eurozone, which continues to flirt with both deflation and a new recession.
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In August, German data revealed that its exports had shrunk by 5.8% compared with July. It was in large part blamed on the Ukraine crisis. In September, exports fell again by a further 1% on August.
No matter what the cause, it became clear that the decline was more than likely to be a long-term trend. More data released in October showed German export surpluses had dropped by €4.7bn to €17.5bn.
Germany's poor showing reignited hopes among investors of a European Central Bank (ECB) stimulus programme. Talk of quantitative easing (QE) in Europe has been on-goingfor some time. The idea gained more support when the US QE programme was declared a success this year and eventually ended.
The main opponent for a eurozone QE programme has been Germany. It did not want more euros to be printed, because of the fear of inflation. Indeed, as long as the German economy was doing well, extra cash flowing into the system was likely to lead to inflation.
Many southern European countries were already especially vocal supporters of QE. The new hope was that Germany would drop its opposition to QE, given signs that its economy was weakening.
ECB president, Mario Draghi, announced ever more smaller stimulus packages. It was also rumoured that he was personally in support of a stimulusprogramme all the signs pointed to QE and investor expectations followed it.
Those expectations have been thwarted, at least until next year, with the ECBdeciding to wait. It will first assess the results of its current smaller scale stimulus programmes, including the purchase of safe' bonds, before taking further action.
Several other concerns face global markets. Some have welcomed the drop in the price of crude oil on the basis that it will lead to lower fuel prices and facilitate economic activity as a result. Goldman Sachs economist Kevin Daly even predicted that petrol "will drop to around £1 per litre" in the near future.
However, the continued drop in the oil price, which has fallen through$60 a barrel, has had a negative knock on effect for oil companies. Two of the top three companies by market cap in the FTSE 100 are oil majors, BP and Royal Dutch Shell.
It means that changes in their stock price will have much more of an effect on the FTSE 100 than smaller companies who stand to benefit from the oil price drop.
There is more trouble further east in China and Japan, the world's second and third largest economies. Japan has been in a state of perpetual stagnation for 20 years since its economic meltdown in the '90s.
Recently, Japan has expanded its own QE programme to 80trn ($830bn). The country's economy has historically been based on export. In the 1970s, cheap but good-quality Japanese products flooded the West, especially the US.
Analysts now believe Japan's real plan is to emulate those past achievements by weakening the yen and making Japanese products cheaper in Western currencies. The fear is that it will trigger a currency crisis, because other countries will also devalue in order to not lose their market shares.
A currency war would not necessarily be a bad thing for Western countries that buy so manyeast Asian products. However, it could cause unwelcome turmoil at a time of existing instability. It might also hurtexporting European countries such asGermany, whose products will become even more expensive.
One of the countries that would enter a currency war with Japan would be China, who is facing its own problems. Its economy has been slowing down drastically. The Chinese leadership has set an annual growth target of 7.5% and called it the new normal'. Over the past decade and a half, growth had been in double digits until recently.
China is a huge consumer of natural resources as well as an exporter of manufacturing. A slow down in its economy will mean a reduction in imports. This is bad news for Britain as the FTSE 100 contains several huge raw materials-based companies such asmining giants Rio Tinto and Fresnillo, whose share prices will likely fall.
