World Economy

European Stocks Extend Sharp New Losses

European Stocks Extend Sharp New LossesEuropean Stocks Extend Sharp New Losses

European stocks fell again on Tuesday, extending sharp losses from the previous session, as concerns persisted over the health of the region’s top banks given signs of a global economic slowdown.

The pan-European FTSEurofirst 300 index, which had fallen 3.4% in the previous session, lost more ground to decline by 0.3% in early session trading, Reuters reported.

The European banking index–which had slumped 5.6% on Monday–fell back by another 1.1%.

Goldman Sachs analysts wrote that while there were no signs of any strain in terms of euro or US dollar funding in money markets for European banks, market liquidity had nevertheless reduced.

S&P 500 e-mini futures fell more than 1% as a global equity selloff intensified. On Monday, the S&P 500 fell 1.42 percent in U.S. trading.

Wall Street pared losses but still ended deep in the red. The Dow lost 1.1 percent, while the S&P 500 fell 1.42% and the Nasdaq 1.82%.

The rout began in Europe on Monday, when the FTSEurofirst 300 index shed 3.4% to its lowest since late 2013, led by a near 6% dive in the banking sector.

Deutsche Bank alone sank 9.5% as concerns mounted about its ability to maintain bond payments. Late Monday, the German bank said it has “sufficient” reserves to make due payments this year on AT1 securities.

The cost of insuring bank debt against default also climbed to its highest since late 2013. Borrowing costs in Spain, Portugal and Italy jumped as investors demanded a fatter risk premium over safer German paper, where two-year yields hit record lows at minus 52 basis points.

  Asia Pressured

The selloff spread to Asia on Tuesday, pressuring stocks and lifting bonds and gold.

Asian share markets were scorched as stability concerns put a torch to European bank stocks and sent investors stampeding to only the safest of safe-haven assets.

As fear overwhelmed greed, yields on longer-term Japanese bonds fell below zero for the first time, the yen surged to a 15-month peak and gold reached its most precious since June.

Japanese Finance Minister Taro Aso felt moved enough to warn the yen’s rise was “rough,” something of an understatement as the Nikkei nosedived 5.4%.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.2%, with Australian shares hitting 2-1/2-year closing low, and would have been lower if not for holidays in many centers.

Spread-betters see another weak session in European shares, where German DAX is seen falling 0.7% and Britain’s FTSE 0.5%.

“Sentiment towards risk assets remained extremely bearish and price action reflected a market that may be capitulating,” said Jo Masters, a senior economist at ANZ.

All of which magnified the stakes for US Federal Reserve Chair Janet Yellen’s testimony this week.