Growing fears of world recession haunt global markets; Bank of Ireland shares slide 6%
Fears of a world recession came back to haunt global markets, prompting some investors to buy gold and safe but extremely low-yielding government bonds.
Analysts focussed on a large overnight interest rate cut by the New Zealand central bank and by the latest industrial output figures in Germany, which appeared to suggest Europe's largest economy was hit hard in June by the US-China trade battles.
Nonetheless, the Ftse-100 and the Euro Stoxx index posted small gains, but only after sharp losses in recent sessions.
“There is a sense the recent bounce is on shaky grounds,” CMC Markets analyst David Madden said.
“The equity benchmarks in Europe that are higher, are showing small gains, and it doesn’t exactly project an air of confidence,” he said.
Joshua Mahony at online broker IG said that US and other government bond markets were flashing red for the prospects for the world economy, amid the trade wars.
"With the US 10-year yield hitting the lowest levels since October 2016, there is a clear anxiety over the direction of global growth. Meanwhile, another warning sign came as the US 3-month yield rose above the 10-year yield; a signal that has preceded every US recession over the past 50 years," Mr Mahony said.
In Ireland, one of the biggest casualties was Bank of Ireland -- whose shares slumped 6% in the session.
That brought the losses for the country's largest lender by assets to 53% in the past year.
AIB shares fell 1% to brings its losses to 41% over the same period.
The declines were not universal, however, with hotels group Dalata and the Paddy Power-owner Flutter Entertainment posting gains in the session.
In London, though traders refrained from dumping sterling, the currency remained subdued amid fears of a no-deal Brexit. Shares of internationally-focused companies such as Diageo, BAT, and Unilever advanced.
Meanwhile, German thin tank Ifo warned that "an expectation of shrinking output has taken hold in German industry", citing its latest survey.
“At the moment, the outlook for German industry is anything but rosy,” said Robert Lehmann, economic expert at the Ifo Institute.
“More and more companies are announcing that they intend to cut back their production in the coming quarter. This means that the number of pessimists now greatly exceeds the number of optimists. An end to the recession in German industry is not in sight for the moment,” he said.
Ifo said its survey showed the level in mechanical engineering fell sharply, and "with the exception of the chemical industry, the sharp decline is seen across all industries".
The comments came as official figures showed German industrial output fell more than expected in June, driven by weaker production of intermediate and capital goods.
“The continued plunge in production is scary,” Bankhaus Lampe economist Alexander Krueger said, adding that a recession in the manufacturing sector was likely to continue due to the escalating trade dispute between China and the United States.
Both countries are important export destinations for German manufacturers, which means that the tit-for-tat tariff dispute is having a disproportionately large impact on German goods producers.
