European shares and core bond yields fell on Wednesday, bucking a strong performance in Japan, with bank stocks under pressure following a $3.4 billion settlement over allegations of price-fixing in currency markets.
Also in focus was the Bank of England’s economic outlook, which saw inflation at below 1 percent in the next six months and encouraged investors to build on bets that there would not be a UK interest-rate hike until late next year. Sterling weakened and British government-bond yields fell, Reuters reported.
The pan-European FTSEurofirst 300 equity index was down 0.9 percent at 0852 GMT, while the STOXX Europe 600 banks index was down more than 1 percent.
Regulators imposed penalties totaling $3.4 billion on UBS, Citigroup, HSBC, Royal Bank of Scotland and JP Morgan. Barclays was among the biggest losers, down 1.9 percent, after the FCA regulator said its investigation into the bank was continuing.
Quarterly trading updates put British retail stocks under pressure: J Sainsbury sank 5.2 percent and Tesco fell 2.4 percent after Sainsbury took a hit on profits and the dividend to fund lower prices for customers.
price moves
Such price moves contrasted with the 0.4 percent rise in Japan’s benchmark Nikkei index, which earlier touched a seven-year high amid expectations Prime Minister Shinzo Abe would postpone a tax hike and may call an election for December.
That followed a surprise ramping-up of economic stimulus by the Bank of Japan at the end of October that has seen the yen fall to multi-year lows against the dollar.
“A snap election is likely to generate greater support for Abe and his policies and keep the bias for yen weakness,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.
Investors took refuge in core bonds, where German yields nudged lower after a successful sale of zero interest bearing two-year bonds in Berlin as the prospect of further European Central Bank policy easing offset the lack of return, though investors have cast doubt on the timing of more stimulus.
The German government’s panel of independent economic advisers criticized the ECB’s asset-buying program on Wednesday and urged it to avoid a big increase in its balance sheet until clearer signs of deflation emerged.
“Given the weakening fundamental outlook, we are reducing our allocation to Europe stocks and shifting the proceeds to the U.S. and Japan,” BofA Merrill Lynch analysts wrote in a note.
Oil prices extended their recent drop over fears of cooling demand and a supply glut, with Brent LCOc1 falling to $81.10 per barrel and U.S. crude prices CLc1 down 67 cents to $77.34.
Falling oil prices have rocked exporters such as Nigeria and Russia. Nigeria’s naira brushed off recent central bank action to extend losses, though the rouble was quieter against the dollar and euro following steep falls in the previous session and a near-30% loss versus the dollar this year.
