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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (now) and Nick Fletcher

Market turmoil: Wall Street volatile after FTSE 100 hits three-year low - as it happened

A share trader dressed in a Shrove Tuesday carnival costumes at the Frankfurt stock market today.
A share trader dressed in a Shrove Tuesday carnival costumes at the Frankfurt stock market today. Photograph: Kai Pfaffenbach/Reuters

Closing summary: Market mayhem continues

It’s only Tuesday, but many investors may feel they need a break after two days of dramatic swings.

But instead, they need to get ready for Wednesday - when Janet Yellen, head of the US Federal Reserve, will testify to Congress. America’s top central banker can expect a lot of questions about the financial markets and the global economy.

Especially as some investors think the Fed is going to cut interest rates this year, having only just raised them in December.

Here’s a quick recap of today’s events.

Britain’s FTSE 100 index has fallen to a three-year low. The blue-chip index lost 1%, or 57 points, to 5632.

Mining shares led the rout, with Anglo American losing 11%, as fears of a global recession keep swirling.

After a turbulent session, Wall Street has closed pretty flat tonight. The Dow finished down just 12 points, with consumer goods, healthcare and industrial stocks rallying.

But as Marketwatch reports, there is a lot of angst out there:

“The fear is palpable,” said Kent Engelke, chief economic strategist at Capitol Securities Management, pointing to the heightened volatility in the stock market. “You feel smart for three seconds and then you get humbled again.”

US stock indices tonight (plus Canada!)
US stock indices tonight (plus Canada!) Photograph: Thomson Reuters

Oil has stumbled. Brent crude has lost 2% to $30.79 per barrel, while US crude dropped below $29/barrel.

Deutsche Bank is in the eye of the storm, buffeted by fears over its financial strength. The FT is reporting tonight that Deutsche is considering buying back several billion euros of its debt, to shore up its value.

But it’s not clear that will stem concerns over Deutsche’s CoCo debt, which could default if the crisis worsens.

The turmoil actually began 15 hours ago, when Japan’s Nikkei index suffered its biggest one-day drop in three years.

We’ll be back tomorrow to pick up all the action again. Thanks for reading, and all the comments. Goodnight! GW

Updated

2015, STAR WARS: EPISODE VIISTORMTROOPERS Film ‘STAR WARS: EPISODE VII - THE FORCE AWAKENS’ (2015) Directed By J.J. ABRAMS 14 December 2015 SAM51387 Allstar/DISNEY/LUCASFILM (USA 2015) **WARNING**

One late story breaking... Disney has just announced record quarterly earnings for the last three months.

The entertainment company made $1.73 per share, beating forecasts of $1.45 per share. And it attributed the success to the new Star Wars film, The Force Awakens.

Disney says:

Driven by the phenomenal success of Star Wars, we delivered the highest quarterly earnings in the history of our company.

Updated

Wall Street finishes flat

It’s over.... And after a lively Shrove Tuesday, the Dow Jones industrial average has closed as flat as a pancake.

After being down 145 points, then up 100 points, the Dow finished down just 12 points. The S&P 500 was also unchanged, while the Nasdaq dropped by 0.36%.

Healthcare , materials, and biotech firms did well today, but energy stocks were kicked again, as concerns over global growth continue to mount.

And New York still remained nervous, given the widespread worries about the global economy.

As Steven Baffico, chief executive officer at Four Wood Capital Partners in New York, put it:

It’s difficult to find a lot of momentum to the upside for any sustained period of time.

The US stock market appears to be recovering its nerve....

With an hour to go until the closing bell, US retail giant Home Depot is leading the Dow Jones industrial average, by gaining 1.6%.

Famous names such as Nike, Visa, McDonald’s and Coca-Cola have also turned green, as Wall Street traders regain their nerve after a couple of wild sessions.

But other companies are still sliding. Energy group Chevron is leading the Dow fallers, shedding 3.5%, mirroring the slump in the oil price today.

IT giant IBM are also down, reflecting losses across the tech sector.

Here’s the risers and fallers on the Dow, which is now up 46 points or 0.3%.

Dow Jones risers and fallers

Remarkable scenes on Wall Street....the Dow Jones index is now up! Only by 17 points, or a meagre 0.1%, but it’s a start....

Here’s our City editor, Jill Treanor, on the escalating concerns about the banking sector, which hit shares across Europe again today:

Growing anxiety about whether banks can withstand continued low interest rates and fears of a re-run of the 2008 financial crisis continued to stalk markets when shares fell to a three-year low and bank shares remained volatile.

As shares in Deutsche Bank plumbed new depths on Tuesday and the bank’s chief executive had to reassure its 100,000 staff that it was “rock solid”, concerns mounted about the health of the global banking sector.

“Many are asking ‘crisis’ questions: ‘Is there risk of a financial crisis re-run’ and ‘can a large European bank face a liquidity event’?” said analysts at Goldman Sachs.

The Goldman analysts reckon the alarm bells are ringing too loudly. They recognise that market confidence is “fast deteriorating” but point to the €800bn (£625bn) of capital that European banks have raised since the 2008 crisis as evidence that the fears are overdone – together with the fact that customers are continuing to make deposits and there are no signs of strain in the crucial money markets.

The collapse in confidence in the banking sector since the start of the year has been dramatic. Shares in Deutsche Bank have slumped by almost 40%, UniCredit of Italy is down more than 40% while Credit Suisse is down 37% . The Europe-wide Stoxx 600 banking index is down 27%.....

And here’s the full story:

Another dose of turbulence on Wall Street is driving shares higher!

The Dow is now down just 11 points, having been down more than 100 points earlier.

Wall Street at 2pm EST
Wall Street at 2pm EST Photograph: Marketwatch

Why everyone's worrying about CoCo debt

The cloud of worry hovering over Deutsche Bank has sent investors, analysts and (especially) journalists dashing to swot up on a newish financial instrument, called CoCos.

These contingent convertible bonds were introduced after the 2008 financial crisis, to give European banks an extra wall of protection. They’re been very popular, because they provide a better interest rate than many other bonds. BUT.... that’s because they could potentially be turned into shares, or even wiped out.

Deutsche’s CoCos have been slumping in value recently, on fears that the bank will struggle to get enough cash to meet the repayments (last night, it insisted the April 2016 payment was safe).

Want to know more? Great. Bloomberg has published a useful Q&A.

Here’s a flavour:

So how does it work?

CoCos typically allow a bank to stop interest payments when it runs into trouble, like when its capital ratios breach levels considered dangerous (that’s the “contingent” part). If the bank’s financial health deteriorates further, CoCos can force losses on bondholders. The bonds can lose their value entirely or change into common stock (that’s the “convertible” part).

How do banks determine whether they can pay?

This is where it gets really technical. To make optional payments such as dividends, bonuses and coupons on CoCos, banks must calculate their “available distributable items,” or ADIs. Deutsche Bank, which has to make the calculation based on its audited, unconsolidated accounts under German GAAP, has thinner coverage than other major banks, prompting the current volatility.

Why did regulators create CoCos?

During the financial crisis, taxpayers had to inject billions of dollars into failing banks, while investors in those lenders’ bonds were often fully repaid. Officials wanted to create ways to avoid this in the future.

Here’s the full piece:

How the Bank Debt That Everyone Is Talking About Works: Q&A

It’s tough being a bank right now:

Chins up, though. It could be worse:

Updated

Here’s that sudden slide in the Brent crude oil price, back down to $30.60/barrel.

That may alarm crude producers, as they gather in London for International Petroleum Week.

Updated

And the oil slide is getting worse. Brent crude is now down 6% at $30.92 a barrel on reports that US stockpiles will show an increase in the latest weekly figures, adding to fears of lack of demand and a continuing supply glut.

According to a Reuters survey, crude stockpiles are expected to have risen by 3.9m barrels last week. Meanwhile the Energy Information Administration said it had cut its forecasts for oil demand in 2016 by 110,000 barrels a day and by 260,000 barrels in 2017.

That seems to have pushed Wall Street even lower, with the Dow Jones Industrial Average now down 136 points or 0.8%.

Updated

Oil prices continue to fall, with Brent crude now down 3.8% at $31.63 a barrel and West Texas Intermediate - the US benchmark - down 2.2% at $29.01.

Earlier the International Energy Agency said the world will be stockpiling excess oil for most of 2016, and cut its forecast for demand this year, meaning the supply glut will continue for some while yet.

Updated

Global markets, as measured by the MSCI All-Country World Index, are close to a bear market, that is, 20% below their recent peak:

Updated

European shares close lower but off their worst levels

In yet another volatile day, European markets were firmly in the red once more as investors shied away from risk. With Japanese 10 year bond yields turning negative in another sign of the growing fear of a global recession, poor German industrial figures and a widening trade gap in the UK, there was no shortage of downbeat news.

Banks were in the firing line again on worries about their exposure to struggling sectors and the implications of negative interest rates, in particular Deutsche Bank despite its attempts to calm worries about the state of its business. The Stoxx Europe 600 banking index - which includes the likes of Deutsche Bank, Barclays, and HSBC lost another 3.97% and is now down more than 27% on the year.

Wall Street is also in a turbulent mood, opening lower, recovering into positive territory after reasonable US jobs data and a rebound in technology stocks, before falling once more. The Dow Jones Industrial Average is currently arouind 70 points or 0.4% lower, but the US market performance did help pull European markets away from their worst levels.

So in Europe the final scores showed:

  • The FTSE 100 fell 57.17 points or 1% to 5632.19, a new three year low. Earlier it dropped as low as 5596
  • Germany’s Dax lost 1.1% to 8879.4
  • France’s Cac closed down 1.69% at 3997.54
  • Italy’s FTSE MIB fell 3.21% to 15913.12
  • Spain’s Ibex ended 2.39% lower at 7927.6
  • In Greece, the Athens market is down another 2.89% to 450.83

Updated

Risk analyst and author of the bestseller The Black Swan, Nassim Nicholas Taleb on Deutsche Bank:

Updated

More on the latest jobs data from the US, ahead of Federal Reserve chair Janet Yellen testifying to Congress on Wednesday. Economist Harm Bandholz at UniCredit said:

Following Friday’s solid employment report, today’s JOLTS report was another display of strength: Job openings rose to 5.6m, the second highest since the beginning of the series in 2001, while the number of quits – i.e. voluntary separations by employees – rose to 3.1m, the highest since late 2006. The latter suggests a growing number of more profitable job opportunities for workers as the labor market is approaching full employment. This notion is consistent with the recent pick-up in average hourly earnings at the turn of the year.

These underlying statistics, which usually get less attention that payroll gains or the unemployment rate, help to complete the assessment of the labor market situation. And chair Yellen is known to put particular emphasis on the JOLTS data. Accordingly, she should mention them tomorrow in the context of an improving labor market.

Skeptics may argue that these numbers are backward looking, and that spillovers from tighter financial conditions or the energy slump will curb labor market dynamics in the months to come. This is certainly a risk, and one important reason, why the Fed is currently sitting back and wait. But why should this happen now, when it hasn’t over the past several months? After all, oil prices have started to fall in mid-2014, and most of the adjustment occurred in the first half of 2015. Investment in mining structures has plummeted by 51% in 2015, with more than half of the drop occurring in the first half of the year. Similarly, the rig count plunged by more than 70% since the peak in September 2014, with almost 80% of that drop before the middle of last year. Since then, more than half a year has passed without any negative spill-overs to other parts of economy. Quite the contrary: The employment situation has improved further and workers are now feeling it.



JP Morgan has worked out what it thinks are the exposure of European and US banks to the struggling oil and gas sector - and it amounts to $250bn:

The FTSE 100’s fall to three year lows is an overreaction, according to the Centre for Economics and Business Research.

The research group said it had been warning about the weakness of the global economy for some time, and said in particular that the US Federal Reserve’s rate rise in December was premature. But the current market falls were overdone. Scott Corfe, director and head of macroeconomics at Cebr, said:

Markets have somewhat belatedly woken up to the underlying state of economic reality. We will be in a world of sluggish growth, loose monetary policy and low commodity prices for some time.

As usual with the markets, it is either feast or famine. Our best view of the current circumstances is that, despite all the risks, we should avoid another financial crisis. In particular, Chinese policymakers have sufficient fiscal and monetary ammunition to revitalise the world’s second largest economy. More quantitative easing in the Eurozone, and possibly the US, should also help.

So the most likely scenario is modest growth in the world economy this year. When the reality of this is understood and if there is further monetary relaxation, it is quite likely that the markets will turn. They tend to be a useful lagging indicator.

Here’s a quick snapshot of how top banks have performed since the start of the year (spoilers: badly), courtesy of David Buik of Panmure Gordon:

Bank falls
Bank falls Photograph: Panmure Gordon

US job openings rise in December

Some positive news on US jobs.

The number of job openings increased to 5.6m in December, up from 5.43m in the previous months and compared to expectations of a dip to 5.41m.

The quits rate - which the US Federal Reserve considers a sign of worker confidence in the jobs market - rose to 3.1m.

Those figures seemed to calm Wall Street for a moment, with the Dow Jones Industrial Average moving into positive territory before slipping back again.

Updated

Here are the moves in the Dow Jones Industrial Average:

Dow movers
Dow movers Photograph: Reuters

Wall Street is stabilising a little, but the main indices are still down.

Bloomberg TV

Wall Street opens in the red

The New York opening bell is ringing, getting trading underway on Wall Street.

And shares are dropping.

The Dow Jones has lost 137 points in an early bout of selling, sending the index down 0.8% to 15,893.

The S&P 500 index (the broadest measure of US shares) has lost 0.75%

And the Nasdaq index (heavy with tech stocks) is down 1.39%

The European selloff is gathering speed, as investors brace for Wall Street to open any moment...

The FTSE 100 is now down 89 points at 5600, which by my reckoning is the lowest since July 2012

German finance minister: 'No concerns' over Deutsche Bank

German Finance Minister Wolfgang Schauble today.
German Finance Minister Wolfgang Schauble today. Photograph: Chesnot/Getty Images

Germany finance minister, Wolfgang Schäuble, has just weighed in, telling Bloomberg TV that he has ‘no concerns’ about Deutsche Bank.

That’s the most senior intervention yet, coming shortly after CEO John Cryan told staff the bank “remains absolutely rock-solid”.

Here’s the details:

German finance minister Wolfgang Schäuble said he isn’t worried about Deutsche Bank, amid rising investor concern over the bank’s finances.

“I have no concerns about Deutsche Bank,” he told Bloomberg Television after a press conference in Paris.

Schäuble was attending a joint meeting of French and German finance ministers and central bank chiefs in Paris.

French Economy Minister Emmanuel Macron, left, and French Finance Minister Michel Sapin smile prior to a meeting during a French German economic summit at the finance ministry in Paris, Tuesday, Feb. 9, 2016. (AP Photo/Michel Euler)
French Economy Minister Emmanuel Macron, left, and French Finance Minister Michel Sapin smile at the French German economic summit at the finance ministry in Paris today. Photograph: Michel Euler/AP

Updated

Make that 5%.....

Deutsche Bank share prices

As we flagged up this morning, Deutsche Bank is one of several banks who is now trading significantly below its book value -- what its portfolio of assets, liabilities, capital reserves, etc is actually worth.

Deutsche Bank’s shares have now lost another 3.5%, hitting €13.30.

That’s just below the lowpoint set in early 2009, after Lehman Brothers failed, and is the lowest since at least 1992 (my data doesn’t go back any further).

Wall Street is still expected to open in the red, at 9.30am New York time (2.30pm GMT).

According to IG, the Dow will shed around 150 points at the open, a drop of 0.9%.

They also predict that the VIX “fear” index, which tracks volatility, will jump by over 4%. That shows rising nervousness, although not a full-blown panic.

European stocks are now languishing at their lowest level since September 2013, as the market rout continues to ripple across trading floors.

The benchmark FTSeurofirst 100 index has lost 1.9% today, driven down by banking shares.

The European banking index is down 3.4%, hit by fears over Italy’s financial sector, and by Deutsche Bank (now down 3% since that ‘rock solid’ memo).

The selloff puts more pressure on the European Central Bank to announce new stimulus measures next month, as Reuters explains:

The banking index was set for its biggest weekly losing streak since 1998 as investors fret over the threat to banks’ profitability and capital strength from compressed interest rate margins.

“The mood is clearly negative. What is needed is a strong and clear message from the ECB,” said Activtrades chief market analyst Carlo Alberto De Casa.

FTSE 100 index hits lowest level since November 2012

Shares in London are falling at a faster pace now, dragging the FTSE 100 down to its lowest intraday level since late 2012.

The blue-chip index has shed 76 points now, as jitters over the global economy rear up again.

The FTSE is now down at 5,613 points, a drop of 1.3% today, smashing through the previous three-year low set last month (when London slumped into a Bear Market amid a wave of panic selling).

The FTSE 100 over the last five years
The FTSE 100 over the last five years Photograph: Thomson Reuters

The London market is being dragged down by mining shares, reflecting concerns about economic prospects:

The biggest faller is Antofagasta, a major copper producer, followed by Anglo American - whose interests include iron ore, nickel, and coal. Their shares have been under pressure for months, as emerging market problems have hit demand for commodities.

Biggest fallers on the FTSE 100 today
Biggest fallers on the FTSE 100 today Photograph: Thomson Reuters

Deutsche Bank’s claim that it is “rock-solid” doesn’t appear to have stabilised the markets.

And the prospect of losses on Wall Street today is adding to the nervous feeling in the City, as traders reach for their metaphorical tin hats.

Updated

(FILES) This file photo taken on January 07, 2016 shows a street sign at the corner of Wall and Broad Street across from the New York Stock Exchange. Wall Street stocks dropped sharply in opening trade on Februay 8, 2016 with petroleum-linked shares and technology equities falling hard after another drop in oil prices. / AFP / TIMOTHY A. CLARYTIMOTHY A. CLARY/AFP/Getty Images

Wall Street is expected to suffer fresh losses when trading begins in under two hours time.

The futures market is predicting that the Dow will drop by 121 points, or 0.75%, with similar falls on the Nasdaq and S&P 500.

FXTM Research Analyst Lukman Otunuga says investors have no appetitive for risk assets right now, given fears over a global recession.

It must be understood that confidence towards the global economy remains strikingly low, while the bitter decline in oil prices has soured risk appetite consequently obstructing any solid recovery in the stock markets.

Updated

I’m not sure Deutsche Bank should really be speculating about whether the market selloff has gone too far....

Deutsche CEO: We're rock-solid

Deutsche Bank Annual Press ConferenceFRANKFURT AM MAIN, GERMANY - JANUARY 28: CEO John Cryan attends Deutsche Bank annual press conference on January 28, 2016 in Frankfurt am Main, Germany. It was announce that the Deutsche Bank’s management board would not receive bonuses for 2015 after it reported a full-year net loss of 6.8 billion euros and fourth-quarter net loss of 2.1 billion euros, which were attributed to write-downs, litigation charges and restructuring costs. (Photo by Michael Gottschalk/Photothek via Getty Images)
Deutsche Bank CEO John Cryan. Photograph: Michael Gottschalk/Photothek via Getty Images

Deutsche Bank’s chief executive has issued an open letter to staff, in an attempt to calm fears over the company.

John Cryan, who took over last year, told employees that Deutsche is “absolutely rock solid”.

Last week, at one of our scheduled off-sites, the Management Board talked about progress on our strategy, and how recent market volatility and forecasts for slowing economic growth might impact our clients and us. Volatility in the fourth quarter impacted the earnings of most major banks, especially those in Europe, and clients may ask you about how the market-wide volatility is impacting Deutsche Bank.

You can tell them that Deutsche Bank remains absolutely rock-solid, given our strong capital and risk position. On Monday, we took advantage of this strength to reassure the market of our capacity and commitment to pay coupons to investors who hold our Additional Tier 1 capital. This type of instrument has been the subject of recent market concern.

The market also expressed some concern about the adequacy of our legal provisions but I don’t share that concern. We will almost certainly have to add to our legal provisions this year but this is already accounted for in our financial plan.

Cryan also explains how he wants to turn Deutsche into “a trusted and successful bank”.

It has been involved in several scandals in recent years, and was fined for doing business with US-sanctioned countries like Iran and Syria.

The letter is online here.

Cryan is obviously keen to douse concerns that Deutsche is struggling, after it reported a €6bn loss last October.

Shares in Deutsche Bank are falling, though. After a solid start, they’re now down 1%, adding to yesterday’s 9% tumble.

Mining companies are leading the selloff in London:

Heads-up, UK readers. The Economist Intelligence Unit has predicted that British interest rates will stay on hold until 2020!

The EIU argues that the UK recovery is much more vulnerable than previously thought.

US economy will experience a downturn in 2019, they predict, while rising levels of indebtedness in China will pose another challenge.

And that means:

We no longer expect tightening to begin in the final quarter of this year. We now expect the Bank of England to hold off on tightening for the next four years at least.

That’s a pretty dovish forecast. Many economists reckon the first rate hike will come in 2017 or 2018.

European markets hit fresh 16-month lows

European markets are falling deeper into the red, as lunchtime approaches.

The Stoxx 600 index, which tracks the 600 largest companies across Europe, has dropped by 0.7% to a new 16-month low.

The Stoxx 600 over the last five years
The Stoxx 600 over the last five years Photograph: Thomson Reuters

Italy’s FTSE MIB has lost another 1.7%, the French CAC is down 1% and the German Dax has lost 0.6%, despite the forced-looking air of jollity among the fancy-dressed traders.

In London, the Footsie 100 is down 31 points or 0.5%, as traders continue to be depressed by the slump in Japan overnight.

Achilles Macris has just issued a response to the FCA’s decision to fine him £792,000 today for not being open over the London Whale case.

Macris claims it’s a “major climbdown” by the regulator, because the FCA has belatedly accepted that he never intentionally misled them.

He declares:

The Final Notice issued to JP Morgan by the FCA in 2013 wrongly and unfairly accused me of deliberately misleading the FSA. That Notice was released to the public without the FCA ever having properly heard my side of the story. Today the FCA has finally accepted that this allegation against me was utterly wrong.

Today’s result also vindicates my actions in bringing my third party reference seeking to have this allegation removed from the JP Morgan Notice. The FCA demonstrated a total disregard for my rights as an individual in its haste to issue the JP Morgan Notice and impose a large fine on the firm.

Macris is also taking his case to the Supreme Court, and wants the FCA to expunge that original Notice.

The FCA has had several opportunities to admit its mistakes, but instead, at every turn, it has until now sought to defend and justify its position, wasting public funds.

Updated

Yikes. The yield (interest rate) on Greek 10-year bonds has hit its highest level since last August.

Some investors are losing faith in Greece’s ability to implement its third bailout and get debt relief.

Talks with its creditors over pensions reforms are bogged down, farmers are blockading roads to demonstrate against austerity, and exporters are suffering from the capital controls imposed last summer.

Although European markets are rather calmer than yesterday, there’s an awful lot of jitteriness around.

Ironically, the Asian Lunar New Year appears to have actually made things worse, rather than just remove the volatile Chinese indices from the mix.

Kit Juckes, experienced currency strategist at French Bank Société Générale, explains:

The absence of many Asian market participants just adds to woeful liquidity conditions, while concerns about commodities, Chinese currency policy and global slowdown haven’t gone away at all.

Add to that sharp widening in subordinated European bank spreads and we have the makings of a very nervous market.

Wondering whether to be fearful or cheerful today? Our video runs though the reasons to panic, or be optimistic

Is the global economy about to crash? – video explainer

Former JP Morgan banker fined over London Whale

The banking sector likes to argue that it has mended its ways since the financial crisis struck. Critics aren’t convinced.

So it’s worth noting that Britain’s City watchdog has just slapped a £792,900 fine on a former senior JP Morgan banker, over one of the biggest scandals of recent years.

Achilles Macris, the ex head of CIO International for JPMorgan Chase Bank, has been sanctioned for failing to be “open and co-operative” with regulators over the “London Whale trades” which ultimately cost them £13bn.

The London Whale was Bruno Iksil – whose bullish and complicated trades turned sour in 2012. Despite the potential risks, Macris didn’t tell the Financial Conduct Authority the full extent of the problems, they say.

This made it harder for the FCA to judge the situation, and also made it harder for more junior staff to be open and cooperative.

Mark Steward, director of enforcement and market oversight at the FCA, says:

‘A failure to communicate openly with us can affect the well-running of markets and cause unnecessary harm to investors, especially in times of financial stress or crisis.

Regulators need open communication with firms so that better decisions can be made sooner. Mr Macris should have explained the position more squarely especially when he knew the Synthetic Credit Portfolio’s losses had worsened.’

What a shame that the review in to Britain’s banking culture has been shelved....

Updated

Here’s a reminder of the most astonishing development of the day (so far) -- investors are now paying for the privilege to lend to the Japanese government for the next decade:

Yield is the interest rate on a bond. A high yield means a bond is riskier, while safe-haven assets yield less.

Short-term German and Japanese bonds have been negative for a while, reflecting the fact that they’re a solid place to put your money (especially as there are negative interest rates in Japan and the eurozone).

But for a 10-year bond to be negative? That shows investors are pricing in weak economic growth, and turmoil, for some time.

Nice summary of the situation from Bloomberg:

if you’re just tuning in, here’s our latest news story on the upheaval in the global markets:

Japanese selloff hits investors

The huge selloff in Japan overnight has hit sentiment hard in the City today.

Investors had been hoping that the Chinese New Year holiday would bring some calm; instead, traders have been staring at a 918-point tumble on the Nikkei.

Alastair McCaig of spread-betting firm IG explains:

Any hope investors might have had that the absence of China would enable markets to reduce volatility and rebalance some of the overly bearish sentiment has been quashed by Japan.

In London, the Footsie is struggling to hold onto any gains, while there are further losses across Europe - on top of Monday’s rout.

The Italian market has lost another 1%, as fears over its banking sector mount up (see this earlier post for details)

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

The government debt of some peripheral European countries, including Portugal and Greece, is coming under pressure today. Is the eurozone debt crisis rearing up again?....

McCaig says it’s another worry:

The situation in Greece was never resolved, merely delayed until later.

Greek 10-year sovereign debt is now yielding over 10% – a jump of 25% in little over a month, and 50% from its lows in November last year.

Britain's trade gap has widened to new high

The gap between what Britain imports and exports has hit a record high, in a worrying signal.

During 2015, the UK imported around £10bn more physical stuff than it exported each month. And that means Britain posted a trade in goods deficit of £125bn last year, up from last year’s all time high of £123.1bn.

Worryingly, UK good exports fell by £8.1bn last year, while imports of goods fell by £6.2bn.

That was partly balanced by Britain’s a £90bn surplus in service sector trade (the City does have its uses). But overall, the annual trade deficit widened to £34.7bn in 2015, up £0.3 billion from 2014.

Here’s the report.

The UK trade

In December alone, the trade gap came in at £2.7bn.

And this is bad news for the economic recovery, as net trade is continuing to drag on growth. It knocked one whole percentage point off GDP growth in the third quarter of 2015, for example.

The ONS also warns that growth in UK exports to China slowed last year...

Uk trade figures

It says:

The slower growth in UK exports to China may reflect the easing in output growth and domestic growth in China, lowering the demand for UK goods and services.

Oil Platforms In The Cromarty FirthINVERGORDON, SCOTLAND - FEBRUARY 02: The West Phoenix rig stands amongst other rigs which have been left in the Cromarty Firth on February 2, 2016 in Invergordon, Scotland. Rig platforms are being stacked up in the Cromarty Firth as oil prices continue to decline having a major impact on the UK’s North Sea oil industry leaving thousands of people out of work. (Photo by Jeff J Mitchell/Getty Images)

There’s no prospect of the global oil glut ending anytime soon.

That’s the latest warning from the International Energy Agency. The IEA has just predicted that the world will be stockpiling excess oil for most of 2016, as the price war launched by OPEC has failed to kill the US shale industry.

The IEA also cut its forecast for oil demand this year, which will only add to the glut.

And as for prices, the IEA says it is “very hard to see how oil prices can rise significantly”, if crude oil stockpiles continue to grow.

Oil is currently changing hands at $33 per barrel -- good news for consumers, and countries who import the stuff. But it’s already having a serious impact on petro-producers such as Russia and Saudi Arabia, energy companies, and the banks who have lent to them....

The offices of Barclays Bank, In Canary Wharf, City of London. The government has announced a second package of measures to encourage banks to resume lending to mitigate the credit crisis and the recession.

Has the stock market selloff gone too far?

Banking analyst Sandy Chen argues that there are bargains out there. He points out that some banks, including Royal Bank of Scotland, Barclays and HSBC, are now trading significantly below their ‘book value’ (their market capitalisation is below the actual value of their assets).

Chen says:

Looking at valuations, it appears that another Global Financial Crisis is already priced-in.

These low valuations were only seen in the depths of the 2008/9 financial crisis, after Lehman Brothers failed. So the City is pricing in some “horrendous losses”.

Clearly the situation in China isn’t pretty, as Beijing tries to avoid a hard economic landing. But Chan argues the Chinese banks and regional authorities will absorb the brunt of the losses.

So, this could be a good moment for ‘value investors’ to dip back into the market. Or, the City might be right, and the financial sector could be heading into another big crisis. Caveat emptor....

This is why banks are in trouble

Banks are being hit by a “dangerous cocktail” of risks, warns Mike van Dulken of City firm Accendo Markets.

Those risks include:

And that’s why European bank shares have lost a quarter of their value this year.

Stoxx 600 banks

Curious scenes in Frankfurt today, where traders have dressed up in carnival costumes for Shrove Tuesday....

Share traders dressed in a carnival costumes work a their desks ar the stock exchange on Shrove Tuesday in Frankfurt, Germany February 9, 2016. Frankfurt’s bourse traders follow a long tradition by wearing carnival costumes on Shrove Tuesday. REUTERS/Kai Pfaffenbach TPX IMAGES OF THE DAY

Bank shares hit again

European banks are coming under the cosh this morning, as investors anticipate further problems ahead.

The Stoxx 600 Banks index, which tracks financial stocks across Europe, has fallen by 1.7% already today. That follows a 5.6% fall yesterday.

The sector has now lost 25% of its value since the start of 2016, as fears of a global downturn have savaged market valuations.

Stoxx 600
European bank shares over the last quarter Photograph: Thomson Reuters

Italian banking stocks are leading the fallers, reflecting concerns that they are bogged down with bad loans.

Stoxx 600 biggest fallers today
The worst-performing bank shares today Photograph: Thomson Reuters

Prime Minister Renzi’s government is pushing Italian banks to clean up their balance sheets, but an economic downturn could make the problem even worse.

Updated

Mining stocks are taking a hammering this morning, dragging the Footsie into the red again:

Biggest fallers on the FTSE 100, February 09 2016
Biggest fallers on the FTSE 100 this morning Photograph: Thomson Reuters

That positive London open didn’t last long. The FTSE is now down 15 points.....

Shares in Deutsche Bank have risen by 2%, as investors gingerly return to the Frankfurt trading floor.

Deutsche plunged by 9% yesterday, prompting the bank to insist last night that it can meet an April repayment on its riskiest bonds.

These are the CoCos, or contingent convertible bonds, which pay an attractive interest rate - but will be converted to shares if the bank hits trouble.

Updated

London stock market calm in early trading

VARIOUSMandatory Credit: Photo by Charles Bowman/robertharding/REX Shutterstock (4143970a) Aerial London Cityscape dominated by Walkie Talkie tower at dusk, London, England, United Kingdom. City, Gherkin VARIOUS

European stock markets are open....and staggering back from yesterday’s turmoil.

In London, the FTSE 100 has risen by 35 points, or 0.6%.

Insurance firm Legal & General is leading the way, up 3.5%, followed by retailers Kingfisher (which runs the B&Q DIY chain) and Next, both up 2%.

But mining shares are leading the fallers, with copper producer Antofagasta down 3.3%, Anglo American down 2.4% and Rio Tinto off 1.9%. They’re all vulnerable to a global downturn, which will push commodity prices down even further....

Traders on the Philippine Stock Exchange had an interesting day -- a crowd of lion dancers and dragons popped in, to celebrate the Lunar New Year.

Dragon and lion dancers perform at the trading floor of the Philippine Stock Exchange to start the first day of trading for the Lunar New Year in Manila on February 9, 2016. AFP PHOTO / Jay DIRECTOJAY DIRECTO/AFP/Getty Images

Despite this excitement, though, the main Philippine stock index fell by 1.9%.

German gloom deepens as industrial output shrinks

We have bad news from Germany -- industrial production at the eurozone’s powerhouse economy tumbled by 1.2% in December.

That’s much worse than expected; economists had pencilled in a 0.4% rise in factory output. It suggest the slowdown in emerging markets is now hitting Europe, threatening its fragile recovery since the eurozone crisis.

The fall was driven by a 2.6% slump in the manufacturing of investment goods, while energy production fell by 3% percent and consumer goods output fell 1.4%.

ING economist Carsten Brzeski isn’t prone to exaggeration, but even he is alarmed:

He writes:

While the industry had been able to stomach the cooling of the Chinese economy, the slowdown of emerging markets, the euro crisis and geopolitical risks, it now seems as if extremely low oil prices and the slowdown of the US economy are simply two risks too much for the industry.

Germany already has plenty to worry about, given the uncertainty over Deutsche Bank.

Falling factory output could hit public confidence, warns that Economist Intelligence Unit:

Japan's 10-year bonds turn negative

In another alarming development, the yield (interest rate) on Japanese 10-year government bonds has turned negative for the first time.

That means investors are prepared to pay Tokyo for the privilege of lending to it for the next decade.

Japanese 10-year bond yield
Japanese 10-year bond yield Photograph: Thomson Reuters

That shows how much anxiety has built up in the markets right now, and also shows the impact of Japan’s new negative interest rates (which penalise banks for leaving money in the Bank of Japan’s vaults)

Japanese manufacturers were also hit hard today, as the yen strengthened against the US dollar (hurting exporters).

Car makers were singled out - with Honda falling by 6.4%, Nissan losing 6.8% and Toyota dropped 5.9%.

Kei Okamura, assistant investment manager at Aberdeen Investment Management, says investors are fretting about weak Japanese economy, which forced the Bank of Japan to impose negative interest rates last week.

“I think this sort of succession of events is feeding through to pessimism in the market,” Okamura said (via Reuters)

Updated

An employee works at Tokyo Stock Exchange in Tokyo, Tuesday, Feb. 9, 2016. Asian markets tumbled Tuesday as renewed jitters about the global economy set off a wave of selling in banking stocks. (AP Photo/Eugene Hoshiko)
An employee at the Tokyo Stock Exchange today. Photograph: Eugene Hoshiko/AP

Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo, says there was a “panic situation” in Asian markets today.

Here’s Justin McCurry’s report of the turmoil which wiped almost 1,000 points at one stage.

Japanese Nikkei suffers biggest plunge in three years

Fears of a global recession have sparked a wild selloff in Japan today.

After plunging through the day, the benchmark Nikkei index has closed down 5.5% in a wave of panicky selling.

That wiped 918 points off the Nikkei, leaving it at 16,085. That’s the biggest one-day plunge in three years, as full-blown angst grips the markets.

Jo Masters, a senior economist at ANZ, says:

“Sentiment towards risk assets remained extremely bearish and price action reflected a market that may be capitulating.”

Banks led the rout, hit by the concerns over the world financial sector. Mitsubishi UFJ Financial Group sank 8.7% and Sumitomo Mitsui Financial Group plunged by 9.0%.

Other markets were badly hit too, with Australia’s S&P/ASX 200 shedding 2.8%.

It was a “day of trauma” for bullish investors, says Chris Weston at IG.

He fears that the market rout is going to continue, with banks pulled deeper into the line of fire:

There is huge demand for portfolio protection in all asset classes and it just doesn’t feel like we are going to see a major turn anytime soon.

One can then do a sense check as to what will effectively turn this juggernaut of pain around and this is not a question that is readily answered.

Updated

Introduction: Market rout continues

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

No prizes for guessing what we’ll be covering today.

After Monday’s stock market rout, which wiped £40bn of leading shares in London, fears over the state of the global economy and the financial sector are gripping the markets again today.

It’s been a wild day in Asia, as investors in Japan caught up with the slump in Europe and on Wall Street yesterday.

And European shares are expected to keep falling when trading begins:

Michael Hewson of CMC Markets sets the scene:

If investors were hoping for a quiet week away from concerns about China with Chinese markets closed for Chinese New Year, they got a very rude awakening yesterday as stock markets sold off hard, and there was no respite in Asia markets either despite a late rebound off the lows in the US and as such we could well see European markets open lower today.

The catalyst appeared to come from the European banking sector as screens flashed red across the board in scenes of total carnage, with equity markets selling off hard across the board over concerns about the future profitability of the whole sector, in an era where interest rates look set to go further into negative territory.

Germany’s Deutsche Bank is in the spotlight - last night, it issued a statement reassuring investors that it can meet bond payments in April.

The big fear is that this turbulence starts feeding through to businesses and the public dragging the global economy downwards.

And concern is already building that the UK government is facing a nasty black hole in its fiscal plans, as our front page shows:

If you missed the IFS story yesterday, it’s here.

What’s coming up today? Well, there are two pieces of economic data that could shift the dial:

  • 7am GMT: New German industrial production data
  • 9.30am: UK trade figures for December.

We’ll be tracking all the main events through the day...

Updated

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