Global markets rally led by rise in bank shares

Friday 12 February 2016 18.37
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US and European shares rally today after this week's steep losses
US and European shares rally today after this week's steep losses
Japan's Nikkei index fell by 5.4% to a 15-month low in Asian trade today
Japan's Nikkei index fell by 5.4% to a 15-month low in Asian trade today

European shares rebounded today as Deutsche Bank and Commerzbank rallied, helping stock markets stage a partial recovery from stinging losses earlier in the week.

The pan-European FTSEurofirst 300 index ended 3% higher, rising back up off its lowest level in more than two years.

Fears about how well European banks can cope with slow growth and low interest rates had pushed European banking shares to multi-year lows this week.

But Deutsche Bank surged 11.8% after saying it would buy back more than $5bn in senior debt, easing concerns about its bonds.

Its rival Commerzbank also reported a return to profit in the fourth quarter, and Commerzbank shares jumped 18%.

The STOXX 600 Europe Banks index rose 5.6%. Germany's DAX advanced 1.84%, although it remains nearly 30% below a record high reached in April 2015.

In Dublin the ISEQ gained 0.95%. AIB (+13.37%) and Bank of Ireland (+2.3%) both performed well.

Elsewhere, the CAC in Paris added 2.52%, while the FTSE in London gained 3.08%

Paras Anand, head of European equities at Fidelity International, said the threat to banks had been exaggerated, as had the general market slump this week.

"We do not have a structurally weak banking sector at the moment," he said. "The current market moves look overdone and we are, for the first time, drawn to some of the harder hit areas."

Others remained more cautious. Credit Suisse's investment committee kept a "neutral" position on global equity markets and said it was still too early to buy back into stocks.

The FTSEurofirst 300 still ended down 4% over the course of the week. It is also down 14% since the start of 2016, amid worries about a slowdown in China, the world's second-biggest economy.

Meanwhile, in the US Wall Street has also rallied, led by a rebound in beaten-down financial and energy stocks after five straight days of a gruelling sell-off on fears over the health of the global economy and the banking sector.

Nine of the 10 major S&P sectors were higher, led by a 3.7% rise in the financial sector. Energy and materials stocks, both of which have been hit by slumping commodities prices, were up about 2.5%.

Banks stocks, which were the worst hit due to concerns about the impact of negative interest rates and a energy-backed loan defaults, were the top gainers, led by JPMorgan's near 8% gain.

In stark contrast however, Tokyo stocks suffered a near 5% plunge, leading another Asian rout. Shares in Hong Kong also closed over 1% lower.

Japanese policymakers said today they would seek a global policy response from G20 nations to world market turbulence.

The country's central bank governor dismissed suggestions the rout was caused by the bank's new negative interest rate policy. 

A fierce sell-off gripped world markets yesterday after a warning by US Federal Reserve boss Janet Yellen over the global economy, while oil fell close to 13-year lows.

This week has been one of the most painful for global investors as fears about the world economy - and possible recession - stalked trading floors.

Stress in the financial sector is stoking worries that funding conditions for some companies may tighten, even as many of the world's central banks pump in funds through unorthodox measures.

And in a worrying sign that Europe's debt problems could reappear, the Portuguese 10-year bond yield surged above 4% for the first time since 2014. 

That is a clear departure from last year when investors, hunting for yield, were buying up debt from Portugal and other indebted countries.