European shares were lower on Tuesday with banks and oil companies top fallers. Scepticism at the rigour of recent stress tests has sent bank shares plummeting for a second day. Oil prices in bear market territory is weighing on the energy sector.
The FTSE 100 fell around 0.75% on Tuesday morning with homebuilder and bank shares the biggest drag. Data showing construction output fell at its fastest pace since June 2009 sent homebuilders Travis Perkins (LON:TPK) and Berkeley Group Hldgs (LON:BKGH) to the bottom of the benchmark index. Direct Line Insurance (LON:DLGD) shares rose over 7% after the firm reported a smaller than expected fall in first-half earnings.
Germany’s Commerzbank (LON:CZB) was amongst the worst performing banks after it replaced its annual profit target by forecasting a loss. The share price decline this year in Deutsche Bank AG (DE:DBKGn) NA O.N. (LON:0H7D) and Credit Suisse (SIX:CSGN) has been so severe that both banks have been demoted from the Euro Stoxx 50 index. If regulators had hope for a confidence booster from the stress tests results, they’ve had a rude awakening. Monte dei Paschi's (LON:0R7P) rescue deal was a step in the right direction but the funds involved are too small and there are too many banks with too many NPLs to repeat the same model across the sector.
Safe havens including the Japanese yen and gold were higher following investor dissatisfaction at a Japanese fiscal stimulus package worth $274bn. The Australian dollar erased early losses to gain on the day after the Reserve Bank of Australia cut interest rates to a record low of 1.5%, in another sign of investors questioning the efficacy of central bank stimulus.
Stocks had been gaining in the past two-months as Brexit fears eased, despite oil peaking in June. But the slide below $45 per barrel in Brent crude appears to have been the price point at which stock markets have sat up and paid attention. Oil prices have slumped into bear market territory with a 20% decline from this year’s peak, with WTI crude now below $40 per barrel. Brent at $40 per barrel would mark a 50% retracement of the gains from the low this year and could be a target for short-sellers.
US stocks look set for a lower open amid a slide in European and Asian markets ahead of personal income and spending data and earnings from Pfizer (NYSE:PFE), Procter & Gamble (NYSE:PG), CVS (NYSE:CVS), Aetna (NYSE:AET) and American International Group (NYSE:AIG).
USA pre-opening levels
S&P 500: 6 points lower at 2,164
Dow Jones: 46 points lower at 18,358
Nasdaq 100: 15 points lower at 4,741
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