Slide in bank shares puts an end to market winning streak

UK financial institutions struggle after Bank of England’s negative rates talk

Wall Street’s main indexes fell on Thursday. Photograph: Richard Drew/File/AP Photo

Wall Street’s main indexes fell on Thursday. Photograph: Richard Drew/File/AP Photo

 

European shares broke a four-day winning run on Thursday, with banks reeling from the prospect of near-zero interest rates for a prolonged period, while a technology stock sell-off continued on Wall Street, piling pressure on European tech shares.

The pan-European Stoxx 600 finished 0.5 per cent lower, easing from a one-month closing high hit in the previous session, while the German Dax slipped 0.4 per cent and France’s Cac 40 dropped 0.7 per cent. UK’s Ftse 100, dominated by global companies that bring offshore revenue home, took comfort as the pound slumped after the Bank of England said it was looking more closely at how it might cut interest rates below zero.

The blue-chip index, however, closed 0.5 per cent lower, with major banks such as HSBC, Barclays and Standard Chartered falling about 2 per cent. The broader European banking index – the worst performing sector with a 38 per cent decline this year – dropped 1.6 per cent. “Given the margin-crushing powers of zero-interest-rate and quantitative easing policies, it is no wonder bank shares are performing terribly,” wrote Russ Mould, investment director at AJ Bell, in a note.

DUBLIN

Dublin’s Iseq was down 0.5 per cent at 6,564, slightly outperforming its European peers. As with the rest of Europe, bank shares were the main drag. Bank of Ireland and AIB were both down about 3 per cent.

Shareholders fired a warning shot across Ryanair chief executive Michael O’Leary’s desk on Thursday when less than two-thirds of them voted for his pay package, worried over his nearly half a million euro bonus at a time when the airline is struggling with reduced demand. But the markets were kinder to him, sending the shares in Ryanair up by 1 per cent.

Swiss-Irish bakery group Aryzta fell 5 per cent to 63 cents. It fell more than 9 per cent on Wednesday after its potential sale to a unit of US hedge fund Elliott Management was thrown into doubt in a boardroom coup involving its largest shareholder.

Cairn Homes, which this week received the green light to build 611 apartments on Dublin 4 land previously owned by broadcaster RTÉ, fell 1.2 per cent to 80 cent.

LONDON

The UK’s biggest high-street lenders pulled markets lower on Thursday after they were hit by talk of possible negative interest rates. Natwest, Barclays, HSBC and Lloyds were all in the red as the day ended, dropping 1.2-3 per cent.

The Bank of England may have held off on making any changes to interest rates, but just the talk of negative rates was enough to spark a slide for the banks, said Michael Hewson, an analyst at CMC Markets. The news sent Natwest’s shares to their lowest point in four months.

The struggling banks helped push the Ftse 100 down by half a per cent to 6049.92 points, a drop of 28.56. On the other side of the pond, a similar story played out, as action – or perhaps the lack of it – by the Federal Reserve on Wednesday left traders unimpressed.

“The markets still couldn’t shake the niggling feeling that the Fed let them down on Wednesday night,” said Connor Campbell from Spreadex, nor were they helped by worse-than-expected US jobs figures.

EUROPE

The World Bank’s chief economist, Carmen Reinhart, said the global economic recovery from a pandemic-induced recession may take as much as five years. Tech stocks continued to weigh on Wall Street, while in Europe they shed 1.0 per cent.

Property group Unibail-Rodamco-Westfield slumped 10 per cent to the bottom of the Stoxx 600 after announcing plans to raise €3.5 billion. Among the bright spots, Delivery Hero rose 2.4 per cent after the food delivery group said it would buy the Latin-American operations of Glovo for up to €230 million.

It also launched operations in Japan. Despite Thursday’s declines, the encouraging updates from fashion retailers, buoyant M&A activity and increasing hopes for a coronavirus vaccine kept the Stoxx 600 on course for weekly gains.

NEW YORK

Wall Street’s main indexes fell on Thursday after data showed high levels of weekly jobless claims, while technology-related stocks resumed their slide, with Apple and Amazon among the biggest drags on the Nasdaq.

Nine out of the 11 major S&P 500 sector indexes were lower, with technology stocks leading sectoral declines. “A lot of this is retail investing. Everybody’s trying to book profits, but also trying not to spook markets either,” said William Herrmann, founder and managing partner at Wilshire Phoenix in New York City.

The Nasdaq, which entered correction territory earlier this month, slipped another 1 per cent with Facebook, Apple, Amazon, Tesla, Microsoft, Alphabet and Netflix together losing $150 billion (€127.5 billion) in market capitalisation in the first half hour of trading. Bank stocks slipped 1.1 per cent, while the S&P 500 financials index fell 0.8 per cent, a day after the Federal Reserve pledged to keep interest rates low for a prolonged period to lift the world’s biggest economy out of a pandemic-induced recession.

But with Fed chair Jerome Powell indicating a long road to “maximum employment”, stock markets were disappointed by the lack of firmer details around the central bank’s stimulus plan. – Additional reporting: Reuters