European shares and core bond yields fell on Wednesday, bucking a strong performance in Japan, with bank stocks under pressure following a landmark $3.4-billion settlement over allegations of price-fixing in currency markets.
The pan-European FTSEurofirst 300 equity index was down 0.6 per cent at 0852 GMT, while the STOXX Europe 600 banks index was down more than 1 per cent.
Regulators imposed penalties totalling $3.4 billion on UBS, Citigroup, HSBC, Royal Bank of Scotland and JP Morgan.
Barclays was among the biggest losers, down 2 per cent, after the FCA regulator said its investigation into the bank was continuing.
“Even though the fines are manageable, the news flow for the banks remains negative, and the latest fines come on top of massive fines such as the one paid by BNP Paribas. Banks are getting increasingly reluctant to take risks,’’ said Saxo Bank trader Pierre Martin.
Quarterly trading updates put UK retail stocks under pressure: J Sainsbury sank 5.0 per cent and Tesco fell 3.7 per cent after Sainsbury took a hit on profits and the dividend to fund lower prices for customers.
Nikkei hits 7-year high
Such price moves contrasted with the 0.4 per cent rise in Japan’s benchmark Nikkei index, which earlier touched a seven-year high and put the rest of Asia in the shade amid expectations Prime Minister Shinzo Abe would postpone a planned tax hike and may call an election for December.
That followed a surprise ramping-up of economic stimulus by the Bank of Japan at the end of October that has seen the yen fall to multi-year lows against the dollar.
“A snap election is likely to generate greater support for Abe and his policies and keep the bias for yen weakness,’’ said Jeremy Stretch, head of currency strategy at CIBC World Markets.
Bond yields
Investors took refuge in core bonds, where German yields nudged lower ahead of a two-year bond auction where demand for the zero-interest-bearing paper was seen supported by the prospect of more European Central Bank policy easing, though investors have cast doubt on the timing of more stimulus.
Also in focus was the Bank of England’s latest economic outlook, which was expected to signal that British interest rates will stay at a record low until around the middle of next year.
ECB growth forecast
Economists polled by Reuters expect the central bank to trim forecasts for growth and inflation it published three months ago because prospects elsewhere in Europe have dimmed and a four-year low in oil prices is pushing down inflation.
Oil prices extended their recent drop over fears of cooling demand and a supply glut, with Brent falling to $81.04 per barrel and US crude prices down 67 cents to $77.29.
“Given the weakening fundamental outlook, we are reducing our allocation to Europe stocks and shifting the proceeds to the US and Japan,’’ BofA Merrill Lynch analysts wrote in a note to clients.