Gold hits one-year high as stock markets sell off dramatically
Investors dumped stocks and raced to buy so-called safe haven assets including gold and bonds yesterday, as this year's market rout continued to deepen.
In Britain an index tracking the value of UK banks plunged to a seven-year low.
In the US last night investors ditched American stocks across the board, pushing the S&P 500 and the Dow Jones industrial average down more than 10pc for the year.
In Dublin the Iseq share index, which had already lost more than €10bn this year, closed down 2.65pc.
Gold, traditionally seen as a safe haven in bad markets, surged more than 4pc yesterday to its highest in a year.
"Banks are seen as the front-line, but the sell-off is driven by the sense that global growth is not happening, and the US could even go into a recession," said Eugene Kiernan of Appian Asset Management.
There is now credibility issue around the ability of central banks, including the European Central Bank (ECB) and the US Federal Reserve, to steer economies, he said.
Severe volatility is now a feature of the market, and unlikely to shift at least until March when the ECB and Fed are both due to announce actions.
The rout in financial stocks is being led by banks as investors fear that the negative interest rates employed by a growing band of central banks from Sweden to Japan are now part of the problem rather than the solution. Negative interest rates are supposed to force banks to lend into the real economy by making it expensive to leave it on deposit, but without confident borrowers to lend to, banks that have been forced to hold additional capital as a result of the crisis are trapped in a costly bind.
US Federal Reserve Chair Janet Yellen said yesterday that she is looking at negative interest rates after saying the weakened global economy and steep slide in US equity markets is tightening financial conditions faster than the Fed wants.
"It's a very difficult market right now. Clearly, anything perceived as a risk asset is being sold down," said Steven Baffico, chief executive officer at Four Wood Capital Partners in New York.
The latest fears over western banks add to concerns about the pace of economic growth in China, the world's second-biggest economy and a major consumer of metals and oil, also hit mining and energy sectors.
On international markets spot gold jumped to $1,247.98 an ounce, its highest since February 2015. It is on track for its biggest daily rise since September 2013.
"The safe-haven seekers are moving back. We recommend clients add gold to their portfolios as insurance. If things turn out really bad, there will be much more upside," said Julius Baer analyst Carsten Menke.
Bonds, another traditionally safe asset, are also up. The Irish Government borrowed €1bn on the markets at an interest rate of less than 1pc yesterday, a record low, but even then there were strong indications investor appetite is fading.
The National Treasury Management Agency (NTMA) completed an auction of €1bn of 10-year Irish Government bonds carrying a 1pc coupon or annual interest rate.
The bonds priced at a premium so the true interest rate works out at 0.99pc.
Total bids received from investor at the auction amounted to €1.8bn. That is far below recent deals, which had been heavily oversubscribed by multiples of the amount of bonds available.
Irish bonds are seen as safe, in contrast to the 2008 to 2012 crisis, but after a period that had seen the State's borrowing costs move closer to those of so-called core European nations like France and Germany, the process is now beginning to reverse.
The so-called "spread", which measures the difference between Irish and French borrowing costs over 10 years, has more than doubled since the start of the year.
US Treasury bonds, seen by many as the safest of safe investments, saw their yields plunge to levels not seen since 2012 in some cases as buyers snapped up assets regardless of low returns. (Additional reporting Reuters)