Fresh banking crisis - the Telegraph

Fears about European banking and oil down to $27 as it looks like the Middle East conflict might take off into something much bigger and Russia and the US face off.

Much more on this comming.

Fresh banking crisis fears send FTSE to lowest level since 2012

Health of the financial system and danger of negative central bank interest rates cause bank stocks to fall to lowest level in nearly four years

Share traders dressed in carnival costumes work a their desks in front of the DAX index at Frankfurt 

http://www.telegraph.co.uk/finance/economics/12147540/stock-markets-europe-banks-recession-crisis-crash.html

By Mehreen Khan

9:31PM GMT 09 Feb 2016

• Fears over new financial crisis come back to haunt global markets
• EU bail-in laws send banks spiralling
• Why this market crash is like nothing we've seen before 
• Tokyo closes down 5.5pc; FTSE closes at lowest since Aug 2012
• Japan's 10-year bond yields fall below zero for first time ever

21.31

Dow and S&P 500 close lower

US stocks finished a choppy session slightly lower as investors grappled with weakness in overseas equity markets and another drop in oil prices.

At the closing bell, the Dow Jones Industrial Average and S&P 500 were both down 0.05pc, while the tech-rich Nasdaq Composite Index lost 0.36pc.

"The market is trying to find a floor," said Alan Skrainka, chief investment officer at Cornerstone Wealth Management.

"We still believe this volatility is going to continue until commodity prices settle down, and that hasn't happened yet."

Concerns over the health of global banks also weighed on markets.

John Cryan, the chief executive of Deutsche Bank, was forced to publicly claim the bank is “rock solid” following a dramatic drop in the troubled German giant’s share price.

The British banker, who only joined Deutsche seven months ago, maintained that there was no reason to panic and called on his staff to spread that message to clients.

“You can tell them that Deutsche Bank remains absolutely rock-solid, given our strong capital and risk position,” he said in a letter to employees.

His plea was followed by Germany’s finance minister Wolfgang Schaeuble who took the unsual step of also trying to reassure investors in the lender. “I have no concerns about Deutsche Bank,” he said.

Shares in Deutsche tumbled another 4.7pc on Tuesday. The bank’s shares fell to €13.26 and are now down 46pc since the start of the year and 58pc in the last six months. Last month the bank reported a €6.8bn (£5.3bn) loss for 2015.

Deutsche has led the wider banking market down as fears spread over the profitability and financial stability of Germany’s biggest bank. Yesterday Swiss institution Credit Suisse’s shares were down by almost as much, plunging 7.75pc. Spooked investors also sold off shares in other banks, leaving Barclays down 5.2pc, BNP Paribas down 4.8pc and Italy’s Intesa Sanpaolo down 4.9pc.

18.30

Markets wrap

The FTSE slumped to its lowest level since August 2012 and European equities sold off as markets endured another day of turmoil driven by worries a new banking crisis could erupt in a fragile global economy.

Britain's benchmark blue-chip index ended the day down 1pc to close at 5632 points, it lowest finish in more than three years.

In Europe, the pan-European FTSE Eurofirst endured its seventh consecutive day of declines, falling by as much as 2.6pc in intraday trading.

European banks were the biggest casualties with another 4.5pc wiped off the Euro Stoxx 600. The index has now fallen to its lowest point since the height of the eurozone turmoil in the summer of 2012 when investors were forced to take a "haircut" on Greek government debt.

Western markets were gripped by risk-off sentiment after Japan's Nikkei has closed down 5.5pc, and Asian banks declined by 7pc, in early morning trading.

Japan also became the first major world economy to see borrowing costs on its 10-year bonds fall into negative territory - effectively penalising investors for holding government debt.

The flight to safety was triggered by a heady mix of fears - including concerns that central banks were stoking a new crisis by embarking on an unprecedented experiment with negative interest rates.

"[Monetary policy] is trying to stimulate aggregate demand and the honest truth is that it's not capable of doing that in a sustainable way", said William White at the Organisation of Economic Cooperation and Development.

Perennial concerns about an oil glut also sent Brent crude down by 2.2pc to as low as $32 a barrel.

Evidence of a dramatic slowdown Germany only piled onto woes that the world would struggle to get out of an insipid growth trap this year. German industrial production fell by 1.2pc at the end of last year, it sharpest fall since August 2014.

17:35

Bank valuations since the start of the year

Table courtesy of David Buik at Panmure Gordon shows the biggest bleeders in Europe's financial system this year:

17:30

Here's the cost of insuring against default on European banks (CDS)

ITraxx Senior Financials CDS

17:00

Black Shrove Tuesday

Markets have gone flippin' mental today as investors have jumped out of the frying pan and into the fire on Shrove Tuesday (I will stop now).

Here's how we're closing in Europe. The FTSE has closed at its lowest point since August 2012 at 5632.

Why do EU bail-in laws spook European banks?

A major element of today's heady mix of banking fears stems from new eurozone wide rules which seek to end the era of "too big too fail".

On January 1, Brussels announced European taxpayers would no longer be on the hook for major bank failures, and transposed new rules that would force senior bank bondholders and depositors to take the hit from bankruptcies.

Specifically, the EU's Bank Recovery and Resolution Directive (BRRD) will require creditors to incur losses of at least 8pc of their total liabilities before receiving official sector aid. Britain will not be subject to the rules.

Italy has been one of the fiercest critics of the new rules. The country's central bank has called for a revision of the directive, arguing that it will actually hurt many ordinary and poor in the country. Italian banks are in a bit of a state, with rising bad loans, and a have a banking system where bonds are held by many pensioners.

Four small Italian banks have already needed restructuring under the tough rules, which have left shareholders and junior bondholders out of pocket. Economists are already saying that the crisis in the financial system can come to infect the Italian economy - which is the third biggest in the eurozone.

The introduction of the rules at the start of the year didn't cause much of a ripple in the market, but mixed with fears about bank profitability and negative interest rates, the BRRD - ostensibly a good way to protect taxpayers - is now a source of new danger for the financial system.

15:20

Goldman Sachs: We can cut costs if we have to

Chief executive of Goldman Sachs Group has said the giant investment bank could cut costs as market turmoil, declining oil prices and concerns about Deutsche Bank have pushed down banking stocks.

"We can absolutely do a lot more on the cost side if we have to, especially now, when you have to deliver a return," said Lloyd Blankfein in Miami on Tuesday.

15:10

Deutsche or the Bundesbank?

This observation from former Newsnight Economics editor Duncan Weldon is not as implausible as it sounds....(read more here)

 

Duncan Weldon‏@DuncanWeldon

How much of the rise in German CDS today is driven by people who can't distinguish between Deutsche Bank & the Bundesbank?

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3:58 AM - 10 Feb 2016

14:55

Deutsche woes bring down the German government

Mr Schaeuble's comments earlier today, along with those of his central bank chief on the health of Germany's biggest lender come as markets have started to implausibly speculate on the safety of German government debt.

The cost of insuring against a default on German has rocketed in the last week to highs last seen in 2014......[ ]

'Panic situation': Asian stocks tumble amid fears of new global recession

Japan’s Nikkei index falls more than 5% in trading with Australian and some other Asian markets following suit

http://www.theguardian.com/business/2016/feb/09/panic-situation-as-asian-stocks-tumble-amid-fears-of-new-global-recession

Japan’s Nikkei index plummeted more than 950 points on Tuesday, its biggest loss in one day since May 2013, as the fears over the global economy saw a continuation of the previous day’s selloff in Europe and the US.

The Nikkei dived 5.1% to 16,132.25 in morning trading and extended losses into the afternoon, while Australia’s S&P/ASX 200 fell 2.6% to 4,946.70. Markets were also down in the Philippines, Indonesia, Thailand and New Zealand. The yen meanwhile briefly soared to a 14-month high against the US dollar.

Fears over weak growth prompt global stock markets to fall

The MSCI’s index of Asia-Pacific shares outside Japan fell 1% and might have fallen further had several Asian markets not been closed.

Markets in China, Hong Kong, Taiwan and South Korea were closed for Lunar New Year holidays. Most markets in the region will re-open from Wednesday, with Chinese markets returning next week.

The volatility affecting global markets last month appears set to continue amid concern about Chinese economic growth, falling oil prices and speculation that the US federal reserve could change course with interest rates.

“The combination of concerns that the United States could be heading toward a recession and the global stock sell-off is curbing risk appetite and is sending investors to the safe-haven yen,” Takuya Takahashi, senior strategist at Daiwa Securities, told Kyodo News.

After hovering around the 117-yen line on Monday, the Japanese currency briefly rose to the upper 114 zone to its strongest level against the dollar since November 2014. Investors regard the yen as a “save haven” currency when global markets are hit by the kind of turmoil witnessed in recent weeks.

The yen is expected to make further gains – a trend that eats into the repatriated profits of Japanese auto and other exporters. Three-month dollar/yen implied volatility – which indicates how much currency movement is expected in the months ahead - reached 12.137% its highest since September 2013.

Responding to the yen’s rise, Japan’s finance minister, Taro Aso, told reporters: “It is clear that recent moves in the market have been rough. We will continue to carefully monitor developments in the currency market.”

The dollar was last at 115.26 yen, down 0.6%, after dropping as low as 114.75.

Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo, described it as a “panic situation”.

Ogino added that investors would be closely watching the US federal reserve chair Janet Yellen’s testimony to the house financial services committee on Wednesday for any clues that the central bank might be prepared to slow future rate hikes as market turbulence and global economic uncertainty continue.

“The focus is now on Yellen’s comments tomorrow, and how she’ll respond to these latest market conditions,” Ogino said.

The flight to safety also saw Japanese government bond yields dive below zero for the first time, extending a downtrend sparked by the Bank of Japan’s surprise move last month to adopt negative interest rates on some commercial lenders’ deposits.

“The Nikkei has been well and truly savaged today,” said Chris Weston, chief markets strategist at IG in Melbourne. “It is clear that strong buying in the Japanese government bond market is not going to drive the (yen) weaker in times of extreme volatility, so negative rates have little bearing on markets.”

The Bank of Japan’s rates decision has prompted fears that after years of monetary easing, central banks have few avenues left to explore to encourage investment and boost growth.

Talk of an impending recession in the US, however, is creating speculation among investors that the federal reserve will put on hold its attempts to normalise rates.

“The ‘fear factor’ in markets has morphed from being about an emerging market hard-landing and collapsing oil prices to being about the extent of the slowdown in the developed world and the ability of central banks to reflate asset values yet again,” said analysts at Citi in a note.

The pessimism isn’t universal, however. In a report released at the weekend, Goldman Sachs said there was just a 25% risk that recession would hitindustrialised economies in the next year, rising to 34% over the next two years.

Both forecasts fall below the average risk seen in the past 35 years, despite the turmoil in financial markets. In the US, the probability of a recession in the next four quarters is just 18%, and 24 in the eurozone, according to the US bank’s economics team.