“The recent problems in many emerging markets have revived fears that the world is only now entering a “third leg” of the global financial crisis – the first being the meltdown in the sub-prime mortgage market in the USA in 2008 and the second the near-collapse of the eurozone in 2011-12″, says Melanie Debono from Capital Economics.
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CMC Markets’ Michael Hewson said the FTSE could potentially take even more punishment, testing early 2012 lows of around 5200.
Banks were among the worst performers amid concerns about the industry’s profitability in a low-growth, low-interest rate environment.
Bank and mining stocks have been pummelled worldwide.
“The CDS jump has caused a sharp drop in Deutsche Bank shares”. So intense was the speculation surrounding its future that Wolfgang Schauble, Germany’s finance minister, took the highly unusual step of coming out in support of the bank yesterday.
His comments followed those of John Cryan, the British-born chief executive of Deutsche, who told the bank’s 98,000 staff in a letter that it was “rock solid”.
Wall Street futures have pushed higher following the news that retail sales in the world’s largest economy rose 0.2 percent during the month, helping to shore up markets at the end of what’s been a tumultuous week.
In the past month alone, Barclays shares have shed 22%, RBS has dropped 21%, Lloyds is 17% lower, HSBC is 14% down and Asian-focused player Standard Chartered is 20% down. The Nikkei 225 index dropped 5.4 per cent, its biggest decline since June 2013.
She said: “This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness overseas, exacerbated concerns about the outlook for global growth”.
Investors are particularly concerned about the impact of negative rates, which hits banks ability to make profits they earn money by lending.
In stocks, model rail firm Hornby saw its stock market value fall more than 40% after it warned over mounting losses following “disappointing” new year trading. That’s a particular concern as the US economy has been one of the few bright spots in the global economy, which is seeing a slowdown in China and stagnation in Japan and Europe.
The contract lost 49 cents, or 1.8 percent, to close at $27.45 a barrel on Wednesday in NY. The benchmark index is still down almost 9 percent so far this year.
Independent financial analyst Louise Cooper of CooperCity said bank share falls are “beginning to look ugly”.
Shares in gambling group Unibet surged 9.3 percent after the company’s fourth quarter underlying profit rose more than expected.
Many others have been cutting rates aggressively to try and stoke economic activity.
On Tuesday, WTI was back below US$30 a barrel, while Brent traded at around US$32.60 a barrel.
Shocks waves triggered by the European banking sector reverberated through global markets Tuesday, sinking equities and bond yields as investors dashed for safety.
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Risk-averse investors are meanwhile fleeing to the safe haven of German 10-year government bonds, pushing down the rate of return to 0.58 percent.
