The Latest: Recovery in European markets runs out of steam

LONDON (AP) — The latest on the turmoil afflicting global financial markets (all times local):

11:45 a.m.

The recovery in Europe’s stock markets is fading as futures markets predicted a lower opening on Wall Street.

Having managed to eke out some gains on the open despite the big 5.4 percent drop on Japan’s main stock index, European shares turned lower.

The Stoxx 50 index of leading European shares was down 0.4 percent at 2,657 and near 2-1/2 year lows. And futures markets were predicting a 0.3 percent fall at the open for both the Dow and the S&P 500.

Neil MacKinnon, global macro strategist at VTB Capital, said global equities have lost a staggering $6 trillion since the start of the year.

Back in January, he said it was concerns over China and the slump in the oil price that was behind the slide. Now, he said, there are worries that “another banking crisis might be brewing.”


11:20 a.m.

Perhaps more remarkable than the 5.4 percent reverse posted by Japan’s main stock market was the news that the interest rate on the country’s benchmark 10-year bond became negative for the first time ever.

The yield on the bond fell by 0.05 percentage points to minus 0.03 percent. What that means is investors are willing to pay for the right to lend money to Japan over that time period. One reason they might do so is because Japanese bonds are considered safe.

By contrast, the equivalent bond rate for the U.S. is 1.75 percent, also very low in historical terms.

The yields on Japan’s bonds have been low for years as the country kept its interest rates at or near zero. Last week, the Bank of Japan cut one of its key rates into negative territory and that’s pushed down the yields payable on its bonds.


10:35 a.m.

The Japanese yen, like gold, has also been strengthening in recent days as it too benefits from its supposed safe haven status.

That’s likely to worry economic policymakers in the country who hope a lower yen will help economic activity and lift inflation. A lower yen makes Japanese exports more competitive in international markets as well as raising the cost of imported goods.

Fears of a strengthening currency were largely behind the earlier stock market retreat in Tokyo.

Alastair McCaig, market analyst at IG, said the “last thing the Bank of Japan wants is the yen strengthening against the dollar.”

On Tuesday, the dollar was down 0.2 percent at 115.35 yen. As recently as the end of January, the dollar was trading above 121 yen.


10:25 a.m.

Not all financial assets are suffering during this tumultuous start to 2016.

Though stock markets around the world may be experiencing one of their most prolonged downturns since the global financial crisis of 2008, other financial assets are enjoying strong gains.

Gold has been on the rise as the precious metal benefited from its perception among investors as a safe haven. On Monday, it rose to just shy of $1,200 an ounce, its highest level since last June.

The steadier tone in European markets on Tuesday has seen gold retreat slightly. It’s down about $8 at $1,190.


10:00 a.m.

Banks have been at the forefront of the selling pressure in Europe in recent days as investors worry about their ability to deal with a worse-than-anticipated global economic outlook.

On Tuesday, many of those stocks recouped some of the losses sustained the previous day. Germany’s Deutsche Bank was up 1 percent while France’s BNP Paribas was flat. However, Italy’s UniCredit was down again as fears over the scale of bad loans in the country’s banking sector remain.

Neil Mackinnon, global macro strategist at VTB Capital, said the trading week has started with a firm “risk-off” mood, with European banks in the spotlight given high levels of non-performing loans, especially among the Italian banks.


9:35 a.m.

Stock markets in Europe have managed to eke out some gains despite an earlier slide in Japan’s main index, the latest in a series of dramatic moves in global financial markets.

Having started in the red, European shares pushed higher and the Stoxx 50 index of leading European shares was up 0.7 percent at 2,584. Most of Europe’s main indexes were trading higher.

Earlier, Japan’s main Nikkei 225 stock average ended 5.4 percent lower as renewed jitters about the global economy set off a wave of selling in banking stocks.

Investors around the world are worrying about a number of issues, including the fall in the price of oil to multi-year lows, the scale of the slowdown in China and whether many parts of the global economy will fall back into recession and suffer a debilitating period of deflation, or falling prices.