Global stocks hit the rocks af­ter Asian mar­kets slump

The Pak Banker - - MARKETS/SPORTS -

Euro­pean shares gave up early gains as bank stocks dropped and losses in Asian mar­kets sent in­vestors scur­ry­ing for safe havens.

The pan-Euro­pean FTSEurofirst 300 .FTEU3 dipped 0.1 per­cent and then lev­eled off, af­ter touch­ing its low­est lev­els since Oc­to­ber 2014, and still near its low­est close since 2013.

The in­dex had started in pos­i­tive ter­ri­tory, but bank stocks re­versed early gains. STOXX Europe 600 banks .SX7P were down 1.6 per­cent, and shares in sev­eral Ital­ian banks were sus­pended from trad­ing af­ter drop­ping sharply.

The search for shel­ter pushed up the Ja­panese yen, long con­sid­ered a safe-haven as­set, and drove the yield on Ja­pan's bench­mark govern­ment bond into neg­a­tive ter­ri­tory for the first time ever.

How­ever, there were some signs of sta­bi­liza­tion. Deutsche Bank (DBKGn.DE) rose 1.2 per­cent af­ter sink­ing 9.5 per­cent on Mon­day. Late Mon­day, the Ger­man bank said it has "suf­fi­cient" re­serves to make pay­ments due this year on AT1 se­cu­ri­ties, af­ter con­cern had mounted about its abil­ity to main­tain bond pay­ments.

Many in­vestors be­lieved that signs of stress in the mar­ket for credit de­fault swaps pointed to fur­ther de­clines ahead.

"The CDS mar­ket is in­di­cat­ing a fu­ture fi­nan­cial stress for bond hold­ers in the bank­ing sec­tor. There are con­cerns that the bank­ing sec­tor is un­der-cap­i­tal­ized in Europe and credit con­di­tions are sub-op­ti­mal," said Lorne Bar­ing, man­ag­ing di­rec­tor of B Cap­i­tal Wealth Man­age­ment. Slow­ing global growth was cloud­ing the out­look fur­ther, he added.

"There is a high prob­a­bil­ity of a fur­ther cor­rec­tion in equity prices, led by bank­ing and en­ergy stocks. There could be a wave of de­faults in the en­ergy sec­tor and that will dam­age the bal­ance sheet of the bank­ing sec­tor. We are ad­vis­ing our in­vestors to dras­ti­cally re­duce risk and build pro­tec­tion."

Other growth-sen­si­tive sec­tors, such as ba­sic re­sources .SXPP, also came un­der pres­sure, al­though most ma­jor com­modi­ties were up.

US crude oil rose 2.3 per­cent to $30.37. Brent crude rose over 1 per­cent. Cop­per edged higher in quiet trade, with top con­sumer China on hol­i­day.

Gold ben­e­fited from the risk-off sen­ti­ment, edg­ing higher and set for its eighth straight day of gains. That would mark its long­est win­ning run since 2011. S&P 500 e-mini fu­tures ESc1 were down 0.3 per­cent.

In all, world stocks .WORLD fell 0.6 per­cent. Asia saw the big­gest losses, track­ing the de­clines in Euro­pean and U.S. shares on Mon­day. Ja­panese Fi­nance Min­is­ter Taro Aso felt moved enough to warn the yen's rise was "rough", some­thing of an un­der­state­ment as the Nikkei .N225 nose­dived 5.4 per­cent.

MSCI's broad­est in­dex of Asi­aPa­cific shares out­side Ja­pan .MIAPJ0000PUS fell 1.1 per­cent. Aus­tralian shares hit a 2 1/2-year clos­ing low and would have been lower if not for hol­i­days in many cen­ters. "Sen­ti­ment to­wards risk as­sets re­mained ex­tremely bear­ish and price ac­tion re­flected a mar­ket that may be ca­pit­u­lat­ing," said Jo Masters, a se­nior econ­o­mist at ANZ.

All of which raises the stakes for U.S. Fed­eral Re­serve Chair Janet Yellen when she gives her semi­an­nual tes­ti­mony be­fore Congress this week. "She needs to come across as op­ti­mistic with­out be­ing too hawk­ish and cau­tious with­out be­ing neg­a­tive," Masters said.

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