The Dow lost 1.1%, while the S&P 500 fell 1.42% and the Nasdaq 1.82%.
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“It appears that credit crunch fears have emerged with the earnings deterioration at European banks”, Barclays analysts said. “The bold venture into negative interest rates signals to market participants that central banks will use all tools at their disposal to meet inflation targets”, adds Tahiri.
Deutsche is recovering 2 per cent and this is helping calm the mood in Europe.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2pc, with Australian shares hitting 2-1/2-year closing low, and would have been lower if not for holidays in many centres.
Chris Weston, chief market strategist at IG said, “For those who have traded the overnight move, it nearly feels like something big is brewing, similar to 24 August and the quasi-flash crash capitulation move we saw”.
Amid the volatility investors are scurrying to the assets they perceive as less risky, namely the yen and government bonds. The yen, a traditional haven in times of market turmoil, rose at one point to its highest level against the dollar, at 115.18 yen, since November 2014.
Today, our Fed is jawboning about raising rates, but across the world, central banks have taken a page from our playbook and are printing money and reducing interest rates and margin and deposit…
The Bank of Japan’s recent shift to negative rates has fuelled concerns that ever-more exotic monetary policy is rapidly reaching the point of diminishing returns. That has caused Japanese bond prices, which move inverse to yields, to rise as investors anticipate more asset purchases by the BoJ. In the case of Germany and The Netherlands, government bonds with maturities as far out as seven years have negative yields, and even in the so-called periphery of the eurozone, countries such as Italy and Spain have seen their short-term sovereign bond yields (maturities up to two years) dip into negative territory.
“Japan’s economic activity and prices have maintained stable conditions, and the recent instability in financial markets has not been serious”. Both are at multi-month lows. Against a basket of currencies, the dollar fell 0.4 percent to 99.654.DXY.
All of which magnified the stakes for Federal Reserve chairwoman Janet Yellen’s testimony this week.
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There is one area of the market that may be providing support to investor sentiment: commodities. Most base metals are firmer, too.
