Bears back in charge as sell-off fever hits banks and miners

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The City bailed out of miners and banks today as another savage sell-off pushed London’s FTSE 100 to a four-year low and caused leading shares to lose more than £40 billion in value.

The latest bloodshed was fuelled by a toxic mix of warnings from US Federal Reserve chair Janet Yellen over the impact global turmoil is having on the world’s biggest economy, more pain for the miners and a fresh sell-off for European banks. Sweden’s Riksbank also spooked traders as it cut interest rates even further into negative territory in a bid to hit its inflation target.

The FTSE 100 sank 2.9% or 164 points to 5507.35 — hitting its lowest level since July 2012 at one stage — as investors deserted shares across the board, erasing £42 billion from its value. Indices across Europe took an even bigger battering than London, with France’s CAC 40 and Germany’s Dax down 3.8% and 3.1% respectively. Shares in Italy — where fears over the health of its banks have peaked — slumped nearly 5%.

CMC Markets’ Michael Hewson said the FTSE could potentially take even more punishment, testing early 2012 lows of around 5200. He added: “There is potentially a lot more downside in European markets. There is a significant unwinding going on.”

Yellen’s testimony to Congress overnight set off trading on a sour note with a warning that the US was unlikely to do a U-turn on December’s rate rise despite the growing risks to the global economy.

Miner Rio Tinto added to the gloom over commodity stocks as it plunged to annual losses of $866 million (£598 million) and scrapped its promise to maintain or lift its dividend every year. The shares fell 81p or 5% to 1683p as rivals including Glencore and Anglo American suffered similar falls.

European banks were also in the eye of the storm after France’s Société Générale’s shares plummeted 14% on disappointing results and increased loss provisions. Deutsche Bank — which staged a short-lived rally yesterday — gave up 7% and in London, Standard Chartered, Barclays and HSBC all suffered losses of more than 4%. Aside from capital worries, concerns are mounting over sustainable profits in a low growth and low interest-rate climate, underlined by the Riksbank’s surprisingly deep cut to -0.5%.

Gold hit a nine-month high of $1220 an ounce as investors sought out traditional safe havens. IG Group market analyst Joshua Mahony said: “It is clear that we are seeing the biggest crisis of confidence since the height of the 2007-08 crisis.”

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February 12, 2016 |
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