It was a night of extreme volatility.
Advertisement
The market turmoil of 2016 worldwide has been partly attributed by some market analysts to the end of the US Federal Reserve’s quantitative easing programme and its decision to raise interest rates – arguing a correction in values was perhaps overdue. Forecasts for more growth in USA crude stockpiles and weak demand forecasts contributed to the plunge.
Deutsche Bank, one of the biggest victims, saw its shares decline more than 10% during trading hours in Europe to hit their lowest levels since 1999. Though the pace of decline was lower than expected, it inflamed concerns about follow-on devaluations in other emerging economies to remain competitive and jump-start growth.
Banks and insurers are leading a surge in the cost of insuring corporate bonds to the highest levels since 2013.
The stock market holds the pension savings of millions of workers and is now at a low last seen in 2012. “That’s a tough time generally to play the rational game”.
“It is a worrying time to be a shareholder in banks but I don’t feel it’s as bad as the Lehman crisis as the ECB is more ready to act, and stresses in the financial system are not yet present”, said Andrea Williams, a senior fund manager at Royal London Asset Management, pointing to continued confidence in the inter-bank market.
Europe’s broad FTSEurofirst 300 index closed 3.38 percent lower at 1,239.73. Greece’s ASE Index sank 7.9 percent to the lowest since 1990 as banks tumbled.
Analysts said that the banking sector was prone to further weakness in the near term.
“The Fed has decided not to be the market’s babysitter anymore, so investors are having to adjust a monetary-centric market to one that focuses on fundamentals like earnings and revenues”, said Jack Ablin, chief investment officer at BMO Private Bank.
The yen strengthened past 115 per dollar for the first time in more than a year and climbed against all its major peers.
European bourses are inching off recent lows even after Japanese stocks plunged and yields on the country’s benchmark bonds turned negative as the global “risk-off” rout hit Asia.
The yen is up 0.8 per cent to Y114.97, punching through the Y115 mark and hitting its highest level since early November 2014.
In the U.S., the S&P 500 was down 1.85 per cent in mid-afternoon trading, while the Dow Jones was down 1.9 per cent and the Nasdaq was down 2.2 per cent.
USA 10-year Treasury notes were last up 30/32 in price to yield 1.7431, from a yield of 1.848 percent late Friday.
Yields on Treasury 10-year notes touched the lowest in a year while those on short-dated German securities slid to a record. The Markit iTraxx Europe Subordinated Financial index of credit- default swaps on the junior debt of 30 firms soared for an eighth day, rising 47 basis points to 312 basis points, the highest since March 2013, according to data compiled by Bloomberg. Oil prices also came under renewed selling pressure, with the benchmark USA contract falling below $30 a barrel again, down 3.2% at $29.90 a barrel. Prices dropped 3.9 per cent to $US29.69 on Monday. The shares are down nearly 20% this year.
Safe-haven spot gold reached a peak of $1,198.70 an ounce, its strongest since June 22.
Regional economic reports painted a weak picture, with German industrial production unexpectedly falling 1.2 percent in December from the previous month, while Britain’s trade deficit with the rest of the world widened in the fourth quarter.
Advertisement
Some US bank shares have traded sharply lower in Frankfurt.
