• Dec. 7, 2016, 6:10 pm

Market turmoil: Wall Street falls 2%; negative rates not off the table says Yellen – live

Powered by Guardian.co.ukThis article titled “Market turmoil: Wall Street falls 2%; negative rates not off the table says Yellen – live” was written by Graeme Wearden (until 2pm) and Nick Fletcher, for theguardian.com on Thursday 11th February 2016 16.28 UTC

Pat Toomey of Pennsylvania: I wanted the Fed to normalise policy [ie start raising rates again which happened in December]. Markets now appear to price in no further increases in interest rates. But what are the risks of negative rates? [He lists several including pressure on banks, the prospect of currency war, an effective tax on savings and so on]

Yellen: In European countries which have [introduced negative rates], I was surprised it was possible to take them as negative as they did. Don’t think they pass on negative rates to small depositors, which means bank’s margins are squeezed.

They [other central banks] were concerned about inflation being below objectives and wanted to stimulate economy.

In our context, in 2010 we were concerned about the impact on money market functioning.

Before we took such a step we would have to see how they worked in US context. But we don’t even know if clearing and settlement systems would be able to handle negative rates.

Toomey asks about the legal position, saying a Fed memo seemed to suggest there could be a probem.

Yellen: A memo from 2010 said legal issues had not been studied. I am not aware of any legal restriction that would mean we could not establish negative rates but I haven’t studied legal side of it.

Updated

Would not take negative rates off the table – Yellen

Question from Bob Corker of Tennessee : Is Fed out of ammunition unless you go to negative rates? If things go south are you considering negative rates?

Yellen: The answer is we had previously considered them and decided they would not work well back in 2010. In light of others [introducing them], we are taking a look at them again because we would want to be prepared. We have not finished that investigation. Not automatic they would work well here.

I would not take them off the table, but there is work to do to see if they would be suitable.

Updated

Senator Jon Tester of Montana: What is Fed seeing in housing sector right now?

Yellen: We are seeing recovery in housing, it has gone on for a number of years but is very gradual. House prices have increased quite a bit. [But] the level of new construction remains quite low relative to demographic trends. Quite a significant way for housing to go before it is consistent with demographic trends. It is a support to the economy.

Senator Mike Crapo asks: Would you agree liquidity in bond markets may be less available in stressed market conditions.

Yellen: Normal conditions haven’t changed that much but perceptions suggest that under stressed conditions liquidity may disappear when its most needed. We are looking at these things…

Asked about wages, she says a pick up in wage growth is tentative. She hopes as the economy improves this will increase.

Fed surprised by extent of dollar increase – Yellen

Chair Richard Shelby asks if the precipitous decline in the price of 0il and gas plus the rise of the dollar surprised the Fed or could you have predicted it?

Yellen says the Fed and the markets have been quite surprised by movements in oil price. In part they reflect supply isssue, demand may also play a role.

The stronger dollar we in some ways anticipated as US economy has been performing more strongly than others.

But she says they were surprised at how much it has risen.

Asked about the economy and recession, she says there is always some chance of recession in any year.

But evidence suggests expansions don’t die of old age.

We are looking very carefully at global financial developments which create risk… they may influence the trajectory of the economy and monetary policy.

It is premature to make a judgement [on a recession this year].

On the strength of banks:

We have a more resistent banking system. We have used stress tests to see if firms can support credit needs of our economy even in times of great [financial] stress.

We do have a strong banking system and we’ve seen marked improvement.

Updated

Here’s a chart showing how the chances of a Fed rate rise have dropped sharply since January in the wake of the market turmoil and Yellen’s comments:

Yellen testimony

Yellen testimony Photograph: Senate banking committee

After opening comments from committee chair Richard Shelby and senator Sherrod Brown of Ohio, Federal Reserve chair Janet Yellen is currently delivering her testimony (identical to yesterday’s speech remember).

Meanwhile markets seem to have recovered a little from their worst levels. Analyst Connor Campbell at Spreadex said:

Initially threatening a 300 point plunge when the bell rang on Wall Street the Dow Jones settled into a more solid, if still troublesome, 175 point drop as the open receded into the background. Whether or not the better than expected, and best since December, jobless claims helped (it probably didn’t) is unclear, though at this point in time in the most worthless piece of positive news is likely appreciated by fear-stricken investors. The Dow was probably saved (and this is all relative, remember) by the fact that the blood loss endured by the US banking sector was nowhere near as gory as the scenes over in Europe, Bank of America the worst hit at around a 4% decline.

In Europe things were much the same, i.e. not too good at all. The FTSE just about managed to claw its way back to the 5600 mark, arguably thanks to the fact that Brent Crude is now closer to $31 per barrel than it is to $30. The DAX, meanwhile, tucked under a 2% decline around 40 points away from 8900, whilst the CAC climbed down from its 3.7% nadir to post a 2.7% loss, both indices aided by a (minor) reduction in losses form Deutsche Bank and Societe Generale respectively.

The big question now is, does today’s horrorshow continue into Friday? Given just how fearful investors appear to be at the moment it is incredibly hard to tell; one thing tomorrow does have going for it, however, is data. Lots and lots of it. Germany, Italy and the Eurozone as a whole reveal their preliminary fourth quarter GDP figures, whilst the US sees retail sales, import prices and the University of Michigan consumer sentiment number. The markets will be hoping (nay, praying) that, with a bit of distraction (like on Wednesday), the week can end on a slightly more positive note.

Federal Reserve chair Janet Yellen is back on Capitol Hill to discuss the global outlook and monetary policy with the Senate Banking Committee, the second and last day of her testimony to Congress.

The hearing has begun and can be viewed here.

Elsewhere Morgan Stanley has agree to pay $3.2bn relating to the sale of mortgage-backed bonds before the financial crisis.

Ahead of Yellen’s testimony, some think it is time for a US rate cut:

Wall Street continues global market rout

As predicted, the US market has followed the rest of the world lower.

The Dow Jones Industrial Average is down 243 points or 1.5%, while the S&P 500 has lost 1% and Nasdaq 1.3%.

Meanwhile the International Monetary Fund has confirmed that Christine Lagarde has been nominated for a second five year term as managing director unopposed.

Her first term ends in July.

Lagarde.

Lagarde. Photograph: Chip Somodevilla/Getty Images

Well, here’s the answer to the question about whether Janet Yellen would change her testimony from Wednesday’s remarks in the light of the day’s renewed market turmoil.

No.

The Fed said:

Chair Yellen submitted identical remarks to the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, on February 11, 201.

So if you want to read along with Yellen at 10am EST (3pm GMT) here it is again.

Updated

A trader wipes his face at the stock market in Frankfurt today.

A trader wipes his face at the stock market in Frankfurt today. Photograph: Michael Probst/AP

Here’s some comments on Portugal and Greece from Slovakia’s finance minister Peter Kažimír ahead of the eurogroup:

Bloomberg points out another possible reason behind the plunge in bank shares:

Oil rich Gulf states have of course been hard hit by the plunge in crude prices.

Now here’s a key question about today’s second testimony from Federal Reserve chair Janet Yellen:

Updated

European finance ministers ‘relaxed’ about banks

Over in Brussels, eurozone finance ministers are telling reporters that the European banking sector is in good shape, as they arrive for a Eurogroup meeting.

Eurogroup president Jeroen Dijsselbloem revealed that ministers will consider the market turbulence during today’s session.

European commissioner Pierre Moscovici was pretty optimistic too:

And Finnish finance minister Alex Stubb was “relaxed” about the situation:

Updated

Out of the mists of gloom comes some good news, in the shape of the weekly US jobless figures.

They show that the number of Americans filing new unemployment claims fell by 16,000 last week, to a seven-week low.

The initial jobless claims figure came in at 269,000, down from 280,000. So, US companies kept hiring staff last week, despite the market turmoil.

Updated

A quick recap: More market turmoil

A trader on the Frankfurt stock exchange today

A trader on the Frankfurt stock exchange today Photograph: Daniel Roland/AFP/Getty Images

World stock markets are gripped by another bout of feverish selling today.

Fears over the global economy and the financial sector have hit shares, driven down (most) sovereign bond yields, and sent wild gyrations through the foreign exchange markets.

In London, the FTSE 100 has hit a three and a half-year low. The blue-chip index is currently down 120 points, or 2%.

Financial stocks are under real pressure, with Aberdeen Asset Management, Prudential and Barclays all down 6%.

The FTSE 100 since 2012

The FTSE 100 index, since 2012 Photograph: Thomson Reuters

Other European markets are being routed too, with the French CAC plunging by 3.5%, Italy’s FTSE MIB losing 5%(!) and German DAX off by 2%.

Wall Street is expected to follow suit, with the Dow being called down 280 points or almost 2%.

The day began with a big selloff in Asia, as traders returned after the Lunar New Year. Hong Kong’s stock market slid by 4%.

Maike Currie, investment director for personal investing at Fidelity International, says investors face volatile markets:

“February has continued much like January begun, with markets yo-yoing and investor sentiment swinging from one concern to the next. The FTSE 100 broke the 5,500 barrier today – hitting a new low since July 2012.

“Investors can’t be blamed for feeling unnerved. There is a cocktail of worries clouding the investment horizon from a slowing China, emerging market rout, the unprecedented collapse in the oil prices and more recently, the problems brewing in the banking sector.

Bank shares are in the eye of the storm again:

France’s Société Générale has tumbled by 13% after warning that “headwinds” could hit profitability this year. Deutsche Bank is down by 9%, two days after insisting it was “rock-solid”.

The dollar has fallen sharply against the yen, before suddenly rebounding, sparking rumours that the Bank of Japan has intervened to weaken its currency.

And the British pound has fallen by over a cent against the US dollar to $1.439.

Money has poured into German, US and UK government debt. This has driven down Britain’s cost of borrowing to an alltime low.

But Portugal’s bonds have weakened, sparking fears that investors are worrying about Lisbon again.

Sweden’s central bank fired another shot in the currency wars, surprising the markets by slashing interest rates to a new record low of minus 0.5%.

The oil price has weakened again, with US crude oil trading at levels last seen in 2003.

But gold has jumped by 2.6% to $1,229 per ounce, a nine-month high.

Updated

Financial sentiment right now:

Updated

A rumour is sweeping the trading floors that the Bank of Japan has intervened to weaken the yen, following today’s surge against the US dollar.

And the yen has weakened, moving from ¥111.5 to ¥112 against the $1.

America is waking up to the news that Asian and European markets have taken another bath this morning. And they are next in line:

Alarm as Portuguese borrowing costs hit 18-month high

The flag of Portugal

Investors are ditching Portuguese government bonds this morning, as the financial turmoil grows.

The wave of selling has driven up the yield on Portugal’s 10-year bonds to 4.3%, up from 3.5% yesterday. That’s a remarkable surge, meaning that prices have dropped sharply.

It implies that the markets are losing confidence in Portugal again, demanding a higher rate of return for holding its bonds.

Shorter-term Portuguese debt is also being hit.

The move comes as Lisbon’s new left-wing government begins to reverse some of its predecessor’s austerity policies.

Last week, the EU warned that Portugal was “at risk” of breaching Europe’s fiscal rules, after warily approving its 2016 budget.

Markets Remain Volatile At Frankfurt Stock ExchangeFRANKFURT AM MAIN, GERMANY - FEBRUARY 11: A trader looks up to her monitor of the DAX stock market index at the Frankfurt Stock Exchange on February 11, 2016 in Frankfurt, Germany. Stock markets across the globe have been exceptionally volatile in recent weeks as investors fear a global economic slowdown. (Photo by Hannelore Foerster/Getty Images)

A trader at the Frankfurt Stock Exchange, where the DAX has fallen by 2% Photograph: Hannelore Foerster/Getty Images

Joshua Mahony, market analyst at IG, reckons fear is driving shares down today, rather than a fundamental shift.

He says:

The fear surrounding global financial markets has been cranked up further today, as risk assets once more took a battering in favour of defensive plays.

The continued deterioration in the FTSE is as much to do with the ongoing fall in oil and the fall in the US dollar against the yen, as the outlook for the UK economy itself, yet with markets in freefall, who is going to argue with a trend?

Updated

There are many potential causes of the current rout.

For example: signs of slowing global growth; fears that negative interest rates severely undermine bank profitability; the bad loans lurking in the European financial sector; suspicions that China is much weaker than the GDP figures show….

All good reasons to worry. But as the Wall Street Journal’s Juliet Samuel flags up, the City isn’t sure what’s really behind it.

Yen soars against US dollar

In a morning of wild and alarming moves, one stands out.

The Japanese yen has jumped by 1.7% against the US dollar today, strengthening from ¥113.3 to $1, to ¥111.5.

That’s a chunky daily move. And so far this year, the yen has gained by 7.5% against the US dollar, hitting its strongest point since November 2014.

Yen vs dollar (where a falling price means the yen has strengthened)

Yen vs dollar (where a falling price means the yen has strengthened) Photograph: Thomson Reuters

That will surely concern the Bank of Japan, which imposed negative rates last month in its latest attempt to stimulate growth and inflation.

A stronger yen is bad for exports, and also deflationary as it makes imported goods cheaper.

Yann Quelenn, market analyst at Swissquote Bank, explains:

The US dollar printed a fresh 16-month low against the Japanese yen, suggesting that traders believe the BoJ will be unable to further weaken the yen, while betting the Fed will remain sidelined for a longer period of time.

But there is also chatter that the BoJ may have to intervene in the markets to weaken the yen.

Here, courtesy of David Buik of Panmure Gordon, is a snapshot of the day’s rout (so far) in the banking sector:

Bank falls

Bank falls Photograph: Panmure Gordon

Updated

UK borrowing costs now lowest since debt markets began

Britain’s borrowing costs have now hit their lowest level since the late 1600s, thanks to the plunge in bond yields today (details here).

So reckons Sky News’s economics editor, Ed Conway, who has checked the historic data.

It’s unlikely that Britain’s medieval kings could have borrowed any cheaper either.

They were notorious serial defaulters, due to the demands of court life and military ambitions.

Mind you, academics at the University of Reading have argued that the picture was more nuanced….

Edward I.

Edward I.

They wrote:

It can be difficult to identify medieval interest rates, in part because interest charges had to be disguised to circumvent the Church prohibition on usury, but we found that the king could borrow at 15% annualised interest when his finances were stable but that this could increase to more than 40% during periods of financial pressure, most notably during wartime.

Edward I probably had a surplus on his account with the Ricciardi, who collapsed as the result of a ‘credit crunch’ caused by the unexpected outbreak of war between England and France…..

More here: Credit Finance in the Middle Ages: loans to the English crown c.1272-1340

Updated

The Greek stock market is suffering another rout, led by its banks:

Oil near 12-year low

Oil is being thumped by predictions of a growing crude glut, as the world economy slows.

The price of US crude has fallen by almost 3% today, to $26.74 per barrel.

That’s a one-month low, but also close to the levels ploughed in 2003:

Bloomberg’s Caroline Hyde tweets the details:

West Texas Intermediate crude oil over the last 15 years

West Texas Intermediate crude oil over the last 15 years Photograph: Caroline Hyde

The refusal of oil producers to cut production is fuelling concerns that we may run out of places to put the stuff, as inventory levels keep rising.

Jasper Lawler of CMC Markets explains:

The threat of further rate hikes from the Fed coupled with diminished prospects for a joint production cut between OPEC and non-OPEC producers have sent US oil prices back down to 12-year lows.

The renewed slump in the price of oil has been unfortunate timing for French oil giant Total to report a 20% rise in annual net profits which CEO Patrick Pouyanne proclaimed as the “best performance” amongst the oil majors.

Updated

European bank shares hit lowest since August 2012

Today’s rout has driven European bank shares down to their lowest level in three and a half years.

The Stoxx 600 Banks index, which includes the main lenders in Europe, has shed 6.1% and is now at its lowest level since August 2012.

The Stoxx 600 Bank index over the last five years

The Stoxx 600 Bank index over the last five years Photograph: Thomson Reuters

Summer 2012 was the point at which the eurozone debt crisis began to ease, with European Central Bank chief Mario Draghi vowing to do “whatever it takes” to save the euro.

Today’s rout is being led by Italian banks, and French bank SocGen (after its results missed forecasts today).

The worst performing European bank shares today

The worst performing European bank shares today Photograph: Thomson Reuters

Updated

UK borrowing costs plunge

Britain’s government borrowing costs have just hit an all-time low, according to Reuters data.

The yield on 10-year UK gilts, which are the benchmark for UK borrowing, has fallen to 1.29% this morning in a wave of buying.

Yield, the interest rate on the debt, fall when prices rise. So this implies Britain can borrow cheaper than at any time before (the data I can see goes back to 1989)

UK gilt yields

UK gilt yields (lower means cheaper borrowing costs) Photograph: Thomson Reuters

That sounds like good news, except that it reflects wider fears over a global recession. If traders were upbeat about growth prospects, they’d be buying shares instead.

Updated

Investors are scrambling into “safer” eurozone government bonds.

That’s another sign that they’re seeking protection against recession and market turmoil.

German government bond yields (the interest rate on bunds) has hit a nine-month low this morning – meaning the prices of these bonds has hit the highest level since May 2015.

And the yield on US 10-year Treasury bills has hit its lowest in three years, at just 1.62%.

That also suggests traders are pessimistic about future growth and inflation prospects.

Updated

Bank shares are getting a tonking this morning.

Deutsche Bank, the source of so much worry, is down by 6.3% in Frankfurt, with Commerzbank close behind.

Updated

After a rough start to trading, European stock markets are deep and turbulent sea of red.

Italy is the worst performer, with its FTSE MIB index slumping by over 4%:

The main indices this morning

The main indices this morning Photograph: Thomson Reuters

FXTM Research Analyst Lukman Otunuga says Federal Reserve chair Janet Yellen is partly to blame.

He reckons investors are disappointed that Yellen didn’t rule out interest rate rises, when she appeared at Congress yesterday:

Although the economic environment has transformed for the worst since the start of the year with ongoing China woes and violent declines in oil prices exposing the US economy to downside risks, in defiance the Fed continues to hold the view of raising rates at a gradual pace.

While Yellen also emphasized that financial conditions in the US have become less supportive of growth, this was counterbalanced with the impressive labour report which in the eyes of the Fed opened doors for a potential rate rise in March.

Yellen will get a second bite at the cherry later today, when she continues testifying to US lawmakers.

Updated

Wall Street is expected to take a tumble later today:

Nour Al-Hammoury, chief market strategist at ADS Securities in Abu Dhabi says:

Asia and Europe equities remain weak following the Feds acknowledgment that they have concerns over global markets. European financial risk indices continue to rise, which is keeping demand high for safe haven assets.

Ahead of the open we’re currently calling the DOW down 275 15640 and the S&P down 32 at 1820

Sweden cuts interest rates

Sweden’s central bank has cut the country’s interest rates deeper into negative territory, in another sign of the turbulence in the financial world.

The Riksbank has just announced that the headline rate will fall to -.50%, from -0.35%.

The move is designed to drive inflation up and stimulate growth.

The bank says:

The economy continues to strengthen but inflation is expected to be lower during 2016 than previously forecast.

The rate cut will also weaken the Swedish currency. It is already hitting the Swedish Krone hard, sending the euro surging against the krone.

Euro vs krone

Euro vs krone Photograph: Bloomberg

Only 3 economists surveyed by Bloomberg has expected such a deep cut (8 thought rates would stay at minus 0.35%, and 7 predicted a cut to minus 0.45%)

Updated

Tony Cross, analyst at Trustnet Direct, says fears over the world economy are hitting shares hard, and also pushing the oil price down.

Any hopes that yesterday’s modest rally for the FTSE-100 would mark something of a turning point have been dashed.

WTI crude oil prices tested territory below $27/barrel, whilst the return to work after the Lunar New Year break saw traders in Hong Kong lacked any signs of optimism. Janet Yellen’s words yesterday have clearly done nothing to calm sentiment – yes the next US rate hike may have been pushed back, but the challenge now is managing the US recovery against a potential global slowdown.

FTSE 100 hits 3.5 year low

The London selloff is accelerating, wiping 130 points off the Footsie.

The index of major blue-chip shares has now hit its lowest level since July 2012:

feb11ftsedown

Over in Paris, French bank Societe Generale has plunged by 9%.

It missed City forecasts this morning, with net income coming in around 31% below analyst forecasts.

SocGen also warned that “headwinds” could hamper its efforts to hit profitability targets this year.

That wipes out yesterday’s recovery:

Socgen’s share price

Socgen’s share price Photograph: Bloomberg TV

Updated

Money is pouring into safer assets, and out of shares.

The gold price has risen to $1,211 per ounce, its highest since May 2015.

And the Japanese yen has hit its highest level against the British pound since November 2013.

London stocks are falling sharply

Down we go again!

European shares are falling at the start of trading. The FTSE 100 has shed 101 points, or 1.7%, to 5,570 points.

Germany’s DAX has lost 1.5%, and the French CAC is off by 1.6%

Most London shares are down, but mining stocks are leading the selloff reflecting ongoing gloom about the global economy.

Rio Tinto has slumped by 6.7%, after it abandoned its “progressive dividend” policy this morning (a promise to pay more shareholders in future years).

The top fallers in London today

The top fallers in London today Photograph: Thomson Reuters

This follows a late-selloff on Wall Street last night, and the slumps in Asia earlier today.

Mike van Dulken of Accendo Markets says:

The weakness stems from Fed chair Janet Yellen warning on current financial market turbulence and suggesting further rate hikes could be delayed, which added to already raised anxiety about the health of the global economy to hold back risk sentiment.

Updated

A display board shows the falling Hang Seng Index during morning trading on the first day of trading after Lunar New Year holidays at the Hong Kong Stocks Exchange in Hong Kong, China February 11, 2016. REUTERS/Bobby Yip

A display board shows the Hang Seng Index tumbling by 4%, on the first day of trading after Lunar New Year holidays. Photograph: Bobby Yip/Reuters

It’s never great returning to work after a holiday. But the mood in Hong Kong was particularly grim, as investors watched shares tumble.

Nitin Dialdas, chief investment officer at Mandarin Capital in Hong Kong, told Reuters that 2016 will be tough.

”I think this is going to be a difficult year for investors and even a fledgling U.S. economic recovery looks to be snuffed out by global markets development.”

Charles Li, chief executive of the Hong Kong Stock exchange, was also gloomy:

“There is very little good news and continuous bad news and this is a test of market confidence.”

Asian markets dive after the holiday

Hong Kong’s stock market is suffering its worst start to the Lunar New Year since 1994.

A wave of selling has hit shares as traders return to their desks after this week’s holiday.

They were swift to catch up with the turmoil in European and US markets, with Asian markets having been shut since Friday.

The Hang Seng index has lurched down, losing 795 points or nearly 4% to 18,535. That’s its biggest one-day loss in six months.

As this chart from Bloomberg shows, that’s the worst start to a Lunar New Year in over two decades:

There were similar losses in other Asian markets. South Korea’s Kospi staged its biggest daily drop in nearly four years, down 2.9 percent to finish at 1,861.54.

Shane Oliver, chief economist at AMP Capital in Sydney, blamed fears over the global slowdown, and the oil price slump, adding:

“What started in January as mainly China based worries has clearly broadened back out to concerns about global growth”

Updated

Introduction: European markets to fall again

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

There’s no end in sight to the market turmoil. European stocks are expected to fall at the start of trading, with worries over the global slowdown centre-stage again.

The futures market suggests the main indices, including London’s FTSE 100, will lose around 1% at the opening – wiping out Wednesday’s small rally.

Federal Reserve chair Janet Yellen is testifying to Congress for the second day running (at 3pm GMT). She’ll probably repeat her concerns about the turmoil in the markets, which could prevent the Fed from hiking rates this year.

We’ll hear from another central bank today, too.

At 8.30am, Sweden’s Riksbank announces its monetary policy decision, and some economists believe it will cut interest rates deeper into negative territory.

Predictions for the Riksbank decision

And Eurozone finance ministers are meeting in Brussels; Greece’s struggling bailout talks will be on the agenda, as Athens and its creditors continue to argue over its austerity plan.

In the corporate world. oil giant Total, holiday firm Thomas Cook, insurance group Zurich and mining giant Rio Tinto are all reporting results (more on them shortly….)

We’ll be tracking all the main events through the day…

Updated

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