FTSE 100 overcomes jitters after Fed fails to come to the rescue

17:01

Markets rule out UK interest rate rise until end of decade

Financial markets now believe there is a 50pc chance the Bank of England will cut rates this year.

Szu Ping Chan writes:

UK interest rates will remain on hold until the end of the decade, according to markets which now believe there is a near 50pc chance the Bank of England will cut rates this year.

Fears over global growth and recent turbulence in equities means markets now expect the Bank to keep policy on hold until August 2019, which would mark more than a decade of record-low rates.

Just last month, Morgan Stanley's closely-watched index, which compiles traders bets on interest rates, showed Bank Rate was likely to rise from 0.5pc in October this year.

However, expectations that the US Federal Reserve will delay further rate hikes following an increase last December, the Bank of Japan's decision last month to introduce negative rates and dovish messages from policymakers at the European Central Bank have pushed back market expectations of a Bank of England rate hike by almost three years since the start of 2016.

Read the full report here

16:30

European stock markets close higher, snapping 7-day losing streak

After a torrid start to the week, European stock markets have finished today's trading session in positive territory, helped by a rally in banking stocks.

While some indices gave up small gains following Janet Yellen's Congressional testimony, most recovered lost ground in late trading.

The German DAX closed 1.9pc higher, while the CAC in Paris was up 2pc and the Spanish IBEX rose 3.1pc.

Back in London, the FTSE 100 finished the day 0.7pc higher - despite making gains earlier in the day of around 1.4pc.

14:56

Reaction to Yellen's testimony

Augustin Eden, of Accendo Markets, on Yellen's comments:

"A not unusually muted reaction to Fed Chair Janet Yellen’s testimony this afternoon, given that she’s come out and said ‘financial conditions in the US have recently become less supportive of growth.’ It doesn’t take a 1st class physicist to recognise that this is essentially another way of saying ‘we raised interest rates before we should have.’

"Nothing had fundamentally changed in December, but the Fed decided to ignore the fundamentals and move US monetary policy to a place that’s less supportive of growth. It now appears the markets chose to ignore the Fed in January, preferring the fundamentals, and what do you know? The markets were right – they’ve been reacting to this testimony for the past four weeks."

14:31

Wall Street opens higher

US stock markets opened higher in the wake of Janet Yellen's comments, which bruised European markets.

The Dow Jones industrial average advanced 0.3pc at the opening bell, while the S&P 500 added 0.6pc and the Nasdaq jumped 1.1pc.

14:25

The Fed is now 'a follower'

14:11

Volatility could hit US growth and means interest rates stay low for longer, warns Fed's Janet Yellen

Federal Reserve chairman says economic woes overseas could derail the US economy.

Economics correspondent Peter Spence writes:

Volatility in financial markets will determine the path of US interest rates, as concerns about the safety of the global financial system threaten to curtail US growth, Janet Yellen, chairman of the Federal Reserve, has said.

“The economic outlook is uncertain,” the US central bank chief said in her semi-annual testimony to Congress, warning that any number of potential risks could cause financial market conditions to worsen. “Foreign economic developments, in particular, pose risks to US economic growth,” Ms Yellen said.

A cocktail of fears over Chinese growth, cheap oil prices, and the integrity of some of the world’s largest banks has loomed over financial markets this week.

Analysts said that it would be up to Ms Yellen to calm the ensuing anxiety.

Full report here

13:05

Fed's Janet Yellen must walk 'invisible tightrope' to convince markets that everything is okay

All eyes will turn to US Federal Reserve chairman Janet Yellen to soothe market nerves, when she begins her testimony in front of the House Financial Services Committee this afternoon.

Economics correspondent Peter Spence writes:

Breaking the current cycle of financial market anxiety will fall to Federal Reserve chairman Janet Yellen, as she testifies before US politicians today.

The US central bank chief is expected to signal that interest rate rises will occur at a slower pace than policymakers had implied when they gave their forecasts for the trajectory of rates at the end of last year.

To satisfy investors, analysts say that the Fed chairman will need to assure markets that the US economy is strong, but not strong enough to necessitate further rate rises.

The Federal Open Market Committee (FOMC) - which decides on US interest rates - elected to increase the Fed’s main rate by a quarter of a percentage point in December.

The well-trailed move caused little commotion at the time. However, signals from officials that they intended to raise rates a further four times in 2016 have generated no small amount of stress.

Read the full report here

12:45

Banking sector soars amid rumours European Central Bank could buy bank stocks

Detutsche Bank has surged by more than 16pc today following a torrid two days. Confidence across the banking sector is fragile after stocks slumped earlier this week amid concerns banks may be unable to repay their debts.

However, the sector has staged quite the comeback today amid rumours that the European Central Bank could buy back bank stocks as part of its quantitative easing programme.

12:36

Shock fall in UK industrial output lays bare plight of sector

Economists warn of more pain ahead, with "no clear indications that the rollercoaster of risks is likely to abate".

Szu Ping Chan writes:

Britain's industrial plight was laid bare today after official figures showed output at the end of 2015 fell faster than at any time over the past three years.

Industrial production contracted by 1.1pc in December from the previous month, the biggest monthly drop since September 2012 and much worse than the 0.1pc decrease expected by economists.

The Office for National Statistics, which compiled the data, said the decline was led by a 5.4pc drop in electricity and gas production, which was hit by the milder weather.

The oil and gas sector, which has struggled amid falling oil prices and high taxes, suffered a 4.6pc decline in output, compared with a month earlier.

Industrial output is now estimated to have contracted by 0.5pc in the final quarter of last year, from a previous forecast of a 0.2pc fall.

Read more here

11:28

Four reasons why stock markets have been getting whacked

Economics correspondent Peter Spence writes:

This week has been a rough ride for investors. Losses on equity markets worldwide have driven the FTSE 100 to its lowest levels in three years, as talk of a global downturn has risen to alarming highs.

The strangest thing, however, has not been the retreat in stocks, but the lack of an apparent catalyst. Traders and analysts alike have been scrambling for an explanation. What could have given cause to the ferocious moves?

1. Nerves about China’s economic growth
2. Fears of energy sector defaults
3. Concerns that the Fed will raise US interest rates too fast
4. Worries that banks can not cope with sub-zero interest rates

Full report here

11:26

Deutsche Bank shares climb as bosses back up tough talk with cash

Tim Wallace writes:

Deutsche Bank’s shares jumped by more than 7pc as markets lapped up reports that the bank is considering buying back some of its bonds in a bid to shore up investor confidence.

Other banks also rallied on the news, with UniCredit soaring 9.4pc, Credit Suisse up 3.4pc and Barclays edging 2.2pc higher.

It comes after two days of rotten trading for the world's biggest lenders, as confidence in the sector slumped over fears that banks might be unable to repay their debts and are headed for another crisis.

Deutsche’s shares have fallen by more than 50pc in the past six months, and by 35pc since the start of 2016.

Read more here

11:10

Southeast Asian stocks mixed at close

Ahead of Janet Yellen's Congressional testimony, stock markets in Southeast Asia had a mixed session today.

Singapore's benchmark Straits Times index closed down 1.6pc, after falling by more than 3pc in intraday trade.

Malaysia's main index fell 1pc, while in Thailand and the Philippines, indices were off by around 0.8pc.

10:36

Gold retreats from 7 month highs

The price of gold has dipped 1.3pc to $1,181.70 per ounce this morning as European stock markets climbed, following two straight sessions of losses.

Investors had flocked to the safe-haven precious metal amid concerns about the tumbling stock markets and the state of the global economy.

However, this morning financial stocks have lifted markets from two-year lows. The DAX is up 2.7pc, while the CAC is 2.3pc higher. The FTSE 100 jumped 1.1pc.

Chris Beauchamp, an IG analyst, said: "It looks increasingly like gold has overreached itself. Having spent two days trying to move on beyond $1200, the rally has apparently spent itself.

"A move below $1180 would open the way to $1170 and down towards the rising daily trendline."

09:24

European shares rebound from 2-year lows

The recovery in Deutsche Bank shares helped pull European bourses from the doldrums this morning.

European indices have bounced back from two-year lows to make gains more than an hour into trading.

The German DAX has climbed 1.9pc, while the CAC in Paris is also 1.9pc higher and the Spanish IBEX has jumped 2.5pc.

The FTSE 100 is lagging behind its European peers, but it has recovered from an earlier blip, when it fell into negative territory momentarily in early trade.

Britain's blue-chip index is now trading up 1pc.

08:58

Goldman Sachs backtracks on 2016 recommendations

We're only six weeks into the new year and already Goldman Sachs have abandoned five of its six recommended top trades for 2016.

The investment bank was wrong on the dollar versus a basket of euro and yen, yields on Italian bonds versus their German counterparts, US inflation expectations and more.

According to Bloomberg, the bank's chief credit strategist Charles Himmelberg, issued a note to clients yesterday, in which he said:

"Markets have started out this week by aggressively de-risking, apparently owing to fears that the recent slowdown in global growth could descend into recession.

"Financial credit spreads are spiking, especially in Europe, possibly signaling a reactivation of systemic risk concerns."

The move by the bank to close its call for five of its six top picks for the year, adds to concerns the world economy is suffering.

07:50

Another battering for Asian markets

Asian stock markets have suffered another beating, with Japan's Nikkei index reporting sharp losses as investors grew increasingly concerned about the state of the world's economy, the health of the banking system and the prospect of another global recession.

The Nikkei index lost 2.3pc to close at its lowest level since October 2014, extending the 5.4pc collapse on Tuesday.

Sydney ended the day down 1.2pc, while Singapore, returning from a two-day holiday, sank 2.1pc in the afternoon. Markets in New Zealand, the Philippines and India also dipped into the red.

Once again, energy firms lost out after oil prices sank below $28 a barrel yesterday, although Brent crude appears to be staging a bit of a comeback this morning.

Among energy stocks, miner BHP Billiton lost 2.5pc of its value, while JX Holdings in Tokyo was down more than 2pc.

Asia's banks also took a beating, following losses in their European counterparts.

Market turbulence is at a five-month high, having jumped 20pc since last Friday, according to the Chicago Board Options Exchange Volatility Index.

06:43

Summary

1. The FTSE slumped to its lowest level since August 2012 on Tuesday and European equities sold off as markets endured another day of turmoil.
2. Europe's Stoxx 600 index of banks also fell to its lowest level since August 2012, losing another 5.6pc.
3. The rout continued on Wednesday in Japan, where the Nikkei dropped 2.3 percent.
4. Australia entered a bear market, with the S&P/ASX 200 Index dropping to its lowest since July 2013.
5. Investors will be watching closely what Federal Reserve Chair Janet Yellen says before the US Congress on Wednesday.

21.31

Dow and S&P 500 close lower

US stocks finished a choppy session slightly lower as investors grappled with weakness in overseas equity markets and another drop in oil prices.

At the closing bell, the Dow Jones Industrial Average and S&P 500 were both down 0.05pc, while the tech-rich Nasdaq Composite Index lost 0.36pc.

"The market is trying to find a floor," said Alan Skrainka, chief investment officer at Cornerstone Wealth Management.

"We still believe this volatility is going to continue until commodity prices settle down, and that hasn't happened yet."

Concerns over the health of global banks also weighed on markets.

John Cryan, the chief executive of Deutsche Bank, was forced to publicly claim the bank is “rock solid” following a dramatic drop in the troubled German giant’s share price.

The British banker, who only joined Deutsche seven months ago, maintained that there was no reason to panic and called on his staff to spread that message to clients.

“You can tell them that Deutsche Bank remains absolutely rock-solid, given our strong capital and risk position,” he said in a letter to employees.

His plea was followed by Germany’s finance minister Wolfgang Schaeuble who took the unsual step of also trying to reassure investors in the lender. “I have no concerns about Deutsche Bank,” he said.

Shares in Deutsche tumbled another 4.7pc on Tuesday. The bank’s shares fell to €13.26 and are now down 46pc since the start of the year and 58pc in the last six months. Last month the bank reported a €6.8bn (£5.3bn) loss for 2015.

Deutsche has led the wider banking market down as fears spread over the profitability and financial stability of Germany’s biggest bank. Yesterday Swiss institution Credit Suisse’s shares were down by almost as much, plunging 7.75pc. Spooked investors also sold off shares in other banks, leaving Barclays down 5.2pc, BNP Paribas down 4.8pc and Italy’s Intesa Sanpaolo down 4.9pc.

18.30

Tuesday's market wrap

The FTSE slumped to its lowest level since August 2012 and European equities sold off as markets endured another day of turmoil driven by worries a new banking crisis could erupt in a fragile global economy.

Britain's benchmark blue-chip index ended the day down 1pc to close at 5632 points, it lowest finish in more than three years.

In Europe, the pan-European FTSE Eurofirst endured its seventh consecutive day of declines, falling by as much as 2.6pc in intraday trading.

European banks were the biggest casualties with another 4.5pc wiped off the Euro Stoxx 600. The index has now fallen to its lowest point since the height of the eurozone turmoil in the summer of 2012 when investors were forced to take a "haircut" on Greek government debt.

Western markets were gripped by risk-off sentiment after Japan's Nikkei has closed down 5.5pc, and Asian banks declined by 7pc, in early morning trading.

Japan also became the first major world economy to see borrowing costs on its 10-year bonds fall into negative territory - effectively penalising investors for holding government debt.

The flight to safety was triggered by a heady mix of fears - including concerns that central banks were stoking a new crisis by embarking on an unprecedented experiment with negative interest rates.

"[Monetary policy] is trying to stimulate aggregate demand and the honest truth is that it's not capable of doing that in a sustainable way", said William White at the Organisation of Economic Cooperation and Development.

Perennial concerns about an oil glut also sent Brent crude down by 2.2pc to as low as $32 a barrel.

Evidence of a dramatic slowdown Germany only piled onto woes that the world would struggle to get out of an insipid growth trap this year. German industrial production fell by 1.2pc at the end of last year, it sharpest fall since August 2014.

• Read all of the news as it happened on Tuesday, February 9