NEW YORK, United States (AFP) — Moves by the Bank of England boosted London stocks Tuesday, but bourses elsewhere retreated as traders nervously eyed record low yields on government bonds.
The British central bank relaxed commercial banks’ capital requirements to boost lending to businesses and households, providing a shot in the arm to London stocks, with the FTSE 100 adding 0.4 percent as the British pound fell to a 31-year low against the dollar.
But Germany’s DAX 30 fell 1.8 percent and the CAC 40 in Paris lost 1.7 percent, as worries mounted over the economic hit from the British exit from the European Union.
“There was a classic, almost textbook, case of general risk aversion,” said analyst Vincent Ganne of FXCM of the weakness in European stocks.
US stocks also suffered a down day, with the S&P 500 falling 0.7 percent.
“It appears there are renewed concerns about growth,” said Jack Ablin of BMO Private Bank.
The BoE highlighted a number of risks emanating the from the vote to leave the EU, including a hit to the commercial real estate market on expectations that some high-end London banking jobs will be relocated to EU cities.
“There is evidence that some risks have begun to crystallize. The current outlook for UK financial stability is challenging,” said a bi-annual report from the central bank’s Financial Policy Committee.
The European financial sector remained under pressure after a warning from the European Central Bank that Italy’s number-three lender Banca Monte dei Paschi di Siena, the world’s oldest bank, had dangerously high levels of bad debt.
The Italian banking system is emerging as a big worry for investors, compounding problems after Britain’s decision to leave the EU, with stress test results on the continent’s lenders due on July 29. Italy’s banks are expected to show capital shortfalls.
BMPS shares, quoted in Milan, lost nearly 20 percent.
– Record-low yields -Meanwhile Britain’s first government bond launch since the country voted to leave the European Union returned a record-low yield of 0.382 percent.
IHS Global Insight economist Howard Archer told AFP that the low yield “reflects expectations of a BoE rate cut and likely revival of quantitative easing” or QE measures.
Yields on US Treasury bonds also skidded to a record low as investors continued to seek safety after the shock Brexit vote.
The return on the 10-year bond sank to 1.367 percent, down from about 1.47 percent Friday amid persistent uncertainty over how Brexit will impact the global economy.
US banking shares were particularly weak as the prospects diminish for the Federal Reserve to hike interest rates.
Morgan Stanley led a rout in major bank shares with a 3.6 percent loss. Citigroup fell 3.3 percent, and JPMorgan Chase and Bank of America both lost 2.8 percent.
– Key figures around 2100 GMT –
New York – DOW: DOWN 0.6 percent at 17,840.62 (close)
New York – S&P 500: DOWN 0.7 percent at 2,088.55 (close)
New York – Nasdaq: DOWN 0.8 percent at 4,822.90 (close)
London – FTSE 100: UP 0.4 percent at 6,545.37 (close)
Frankfurt – DAX 30: DOWN 1.8 percent at 9,532.61 (close)
Paris – CAC 40: DOWN 1.7 percent at 4,163.42 (close)
Euro Stoxx 50: DOWN 1.7 percent at 2,812.88 (close)
Tokyo – Nikkei 225: DOWN 0.7 percent at 15,669.33 (close)
Hong Kong – Hang Seng: DOWN 1.5 percent at 20,750.72 (close)
Shanghai – Composite: UP 0.6 percent at 3,006.39 (close)
Pound/dollar: DOWN at $1.3028 from $1.3317 Monday
Euro/dollar: DOWN at $1.1075 from $1.1142
Dollar/yen: DOWN at 101.75 yen from 102.48 yen
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