A turbulent week in global stock markets is ending with Europe attempting to stage a recovery.
Fears about a severe slowdown in the world economy have sent investors scurrying for safe havens such as gold and the Japanese yen, despite Tokyo trying to weaken the currency, and sent stock markets tumbling.
Even with the FTSE 100 adding 1.6%, or 89.02 points, to 5625.99 on Friday, the UK’s leading index is on course for a 3.8% fall on the week and is hovering around its lowest level for three and a half years. Almost £60bn has been wiped off the value of the index this week.
Germany’s Dax is up 1.4% but over the week is down 4.3%, while France’s Cac has lost 5.6% and Italy’s FTSE MIB is 6% lower since Monday.
In Japan, the Nikkei reopened after a day’s holiday and immediately caught up with the market slump elsewhere on Thursday. The index dropped 4.8%, meaning it has plunged 11.1% this week, which marks its biggest weekly drop since October 2008.
Global stock markets, as measured by MSCI’s all-country world equity index, entered a bear market on Thursday, down 20.18% from its all-time high in May 2015. Analysts said about $1.2tn had been wiped off world equity markets over the week.
Apart from worries about a Chinese-led downturn, the introduction of negative interest rates by central banks, including Japan, Sweden and the European Central Bank, has sent shivers through the banking sector. With banks already under pressure to bolster their balance sheets to protect themselves from another financial crisis, the new negative interest rates will further squeeze their margins.
Just weeks after the Federal Reserve raised US interest rates, its chair, Janet Yellen, said on Thursday it was also examining the possibility of negative rates.
The continuing pressure on oil prices as demand falls amid a supply glut, with no sign of Opec and other producers intending to cut output, has also hit sentiment.
But gold has added more than 5% as money floods into what are perceived to be safer assets.
Gold pic.twitter.com/njMg8enh6t
— Mike Bird (@Birdyword) February 12, 2016
But after the week’s sell-off, mining and banking shares are attempting a recovery. Banks were helped by Commerzbank’s results beating expectations, as well as news that JP Morgan’s chief executive, Jamie Dimon, was buying $26m worth of the bank’s shares. Mike McCudden, head of derivatives at stockbroker Interactive Investor, said:
As another nerve shredding week draws to a close there appears to be some mild relief for investors as equities try to drive higher. However, it may take some time before investors are truly convinced that a move back in to riskier assets is worthwhile, as the market turmoil emanating from Asia and the eurozone shows no sign of going away any time soon.
China’s stock market reopens on Monday after a week’s New Year holiday with Wall Street closed for President’s Day, so further volatility next week cannot be ruled out.
