The Irish market was hit again on Thursday, with the ISEQ index of Irish shares ending the day down 2.4 per cent. It has lost more than 15 per cent of its value since the start of the year.
There has been a similar fall in markets across Europe, with the FTSE 100 down 2.15 per cent - and 11 per cent year to date - while in Germany the DAX was down 2.6 per cent, representing a fall of 18.28 per cent so far this year.
US stock markets took their cues from Europe with the Dow Jones, S&P 500 and Nasdaq all falling by between 1.5 per cent and 2 per cent in early trading.
Euro ministers meet
Euro zone finance ministers are to meet in Brussels to discuss economic conerns as turbulence tore through global markets again with investors seeking the safety of Japanese yen, gold and top-rated government bonds and dumping US dollars on bets the Federal Reserve could be done with raising interest rates.
Some €4 billion was wiped off the Irish market on Monday with the index closing down 5.4 per cent. This was its worst performance since August 24th, 2010, a time when the domestic banks were knee-deep in restructuring and just two months before the Government began talks on a bailout with the IMF and the EU.
Banks hit
Bank shares in Dublin were hit again, with Bank of Ireland shares down nearly 1.8 per cent to 25.57 cent, representing a fall of 23.8 per cent so far this year. Bank shares across Europe were on the slide, with French bank Societe Generale losing as much as 13 per cent, after a poor set of results. Investors are concerned about bank profitability in an era of super-low interest rates and about potential bad losses not yet declared, which may lead to the need for more capital.
In the US shares of four of the biggest lenders fell sharply, extending heavy year-to-date declines. Citigroup was down 4.7 per cent bringing its year to date fall to 30.9 per cent, while JPMorgan Chase was down 3.4 per cent on its opening price and 18.9 per cent so far this year.
Bond yields
One bright spot for Ireland is that nervousness about equities drove cash into government bonds. This helped the NTMA to auction €1 billion in 10-year borrowings this morning at an interest rate of below 1 per cent, a record low for a long-term Irish debt issue.
Elsewhere, Portuguese bonds expereinced their worst day since January 2012 while US 10-year yields fell to their lowest since September 2012.
Separately, Sweden’s crown and government bond yields were sent tumbling as its central bank delivered a surprise cut to its already deeply negative interest rates.
Benchmark European German bond yields dropped like a stone and UK yields hit an all-time low too, as riskier Spanish and Italian bonds moved in the opposite direction. Irish bond yields fell ahead of the NTMA issue and 10-year debt was trading below 1 per cent, though it rose above this mark in later trading.
“What this shows is that the risk-off mode has come back very quickly and that the worst may still be to come in these markets,” said Rabobank European strategist Emile Cardon.
“What is different to previous times is that the bad news in now coming from everywhere, China, Portugal the US the commodity sector the banking sector. It’s like several smaller crises could combine into one big crisis.”
The flight from risk told on most Asian shares, with Hong Kong - a favourite channel for global investors to play China - diving 4.2 per cent as investors there returned from the long Lunar New year holidays. Mainland China markets are closed all week.
Asian shares lower
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 1.4 per cent, and South Korea resumed with a 2.9 per cent drop.
Wall Street had ended Wednesday mixed after Fed chair Janet Yellen sounded optimistic on the US economy, but acknowledged risks from market turmoil and a slowdown in China. Analysts took that to mean a hike in March was unlikely, but further tightening remained possible later in the year.
"Yellen made it clear that while the Fed still expects to continue on its gradual tightening path, policy was not on a pre-set course and would respond appropriately to developments," said Justin Fabo, a senior economist at ANZ.
“The real test may come later, if markets continue to deteriorate and look to central banks to save them. Are policymakers’ guns loaded with blanks?”
The euro also weakened against its Japanese peer, sliding to a 2- year low of 126.06 yen. Against the greenback though, the euro drove to three-month high of $1.1355.
The aversion to risk helped lift gold as far as $1,217.00 an ounce, clearing stiff resistance around $1,200.
Oil prices resumed their decline as U.S. crude slid 70 cents to $26.77 a barrel, while Brent futures lost 33 cents to $30.50.
Reuters
