Stock market rout: Banks drag European shares down, FTSE 100 falls to three-year lows
European shares fell on Thursday, led down by a renewed drop in banks and miners, with Societe Generale and Rio Tinto both under pressure after disappointing with their latest results.
As the FTSE 100 fell to three-year lows, the pan-European FTSEurofirst 300 was down 2.1 percent at 1,215.46 points by 0815 GMT. It rose 1.8 percent in the previous session, snapping a 7-day losing run.
Banks were down 3.4 percent, among the top sectoral fallers. The sector is down over eight percent so far this week as concerns over profitability in a low-growth, low-interest rate environment have knocked confidence in the sector.
The biggest faller in the bank sector on Thursday was Societe Generale, down 7.1 percent after it posted a lower than expected rise in fourth-quarter net income, hit by an additional 400 million euros ($450.4 million) which it set aside to cover litigation costs.
Rio Tinto dropped 7 percent after the miner posted an annual loss and scrapped its promise to maintain or lift its dividend annually for this year onward due to a tough outlook.
The basic resources sector was down 4.6 percent.
Fresh cracks appeared in global markets on Thursday as investors sought the safety of Japanese yen, gold and top-rated bonds while dumping U.S. dollars on bets the Federal Reserve could be done raising interest rates.
Even the absence of Tokyo for a holiday could not stop the dollar from hitting a 15-month low on the yen, and gold finally broke major chart resistance to reach its highest since May.
Insatiable demand for U.S. Treasuries drove longer-term yields to one-year lows and flattened the yield curve in a way that has presaged economic recession in the past.
"In some ways it is reminiscent of 2008 with tightening credit markets, bank shares under pressure and worries central banks are powerless," said Shane Oliver, head of investment strategy at AMP Capital, though he suspects markets are overly pessimistic this time.
The flight from risk told on most Asian shares, with Hong Kong - a favourite channel for global investors to play China - diving 4.2pc as investors there returned from the long Lunar New year holidays. Mainland China markets are closed all week.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 1.4pc, and South Korea resumed with a 2.9pc drop.
Wall Street had ended Wednesday mixed after Fed Chair Janet Yellen sounded optimistic on the U.S. 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?"
It seemed some were already preparing for the worst.
Longer-term U.S. debt rallied hard as investors wagered that either the Fed would be unable to tighten at even a gradual pace, or that if it did hike it would only hasten the arrival of recession and deflation.
The yen was again lifted by safe-haven flows, as befits Japan's position as the world's largest creditor nation. The dollar dove through 113.00 yen to reach depths not delved since November 2014 at 112.515.
The euro also weakened against its Japanese peer, sliding to a near three-week low of 127.26 yen. Against the greenback, the euro held firm at $1.1292 and within reach of a three-month high of $1.13385 set earlier in the week.
The aversion to risk helped lift gold as far as $1,213.00 an ounce, clearing stiff resistance around $1,200.
Oil prices resumed their decline as US crude slid 47 cents to $26.98 a barrel, while Brent futures lost 18 cents to $30.66.