The FTSE 100 closed out Tuesday some 57 points, 1%, lower at 5,632 amid investor fears over a possible new banking crisis.
Banking stocks such as Lloyds Banking Group (LON:LLOY) fell 1.4p (2.4%) to close at 57.93p, Royal Bank of Scotland (LON:RBS) backtracked 5.6p (2.4%) to 225p and Barclays (LON:BARC) lost 6.3p (3.85%) to 157.60p.
FTSE100 slumps on bank fears, drug sector talk injects interest
The spectre of another potential banking crisis fuelled a share slide in the London market on Tuesday.
The FTSE 100 Index gave up early gains to stand 86 points off at 5603 by lunchtime after Japanese bank stocks wobbled following Tokyo's imposition of negative interest rates last week.
Banks in the UK and continental Europe were also under the cosh as investors began to worry about the impact of concerns that have dogged market risk appetite since the start of the year.
HSBC (LON:HSBA) dropped 5.35p to 433.1p, Lloyds Banking Group (LON:LLOY) fell 1.5p to 57.85p, Royal Bank of Scotland (LON:RBS) backtracked 6.5p to 224.2p and Barclays (LON:BARC) lost 6.85p to 157.05p.
Rabobank economists cited the potential impact of anxiety about growth in China and emerging markets, worries about the wider impact of the December US Fed rate hike and concerns about how banks’ balance sheets will handle flattening yield curves.
"Underpinning these worries is fear about the ability of central banks to stimulate growth and inflation going forward, given interest rates in most major economies are already at or close to record lows," they said.
Economic research house Markit has also highlighted the impact that low oil prices could have on US banks heavily invested in shale oil & gas drillers.
Markit said in a separate note on Tuesday that investors pulled about US$1bn in funds from European exchange traded funds exposed to financials since the start of the year.
On the European economic front, there was little to lighten the mood with figures showed Germany's industrial production in December falling to lows not seen in four months.
And in the UK, a wider UK trade deficit in the fourth quarter cast doubt over government claims that it was weaning the economy off its reliance on the service sector.
Back in equities, reheated rumours were doing the rounds about possible British interest in US company Intercept Pharmaceuticals (NASDAQ:ICPT), which has a promising liver disease treatment.
Intercept is developing obeticholic acid, which is tipped to generate US$2.62bn by 2020 and is awaiting the outcome of a marketing application to the US Food & Drug Administration.
The US company has already been the subject of merger murmurs, with rival Shire (LON:SHP) mentioned as a potential suitor.
But with Shire busy taking US blood disease specialist Baxalta under its wing, attention is said to have switched to AstraZeneca as one of a number of possible buyers.
The vague talk was that Intercept had teamed up with CenterView Partners, which advised Dyax Corp on its sale to Shire and Receptos on its takeover by Celgene, to advise it on selling itself.
Spokespeople for AstraZeneca and Intercept both declined to comment on the unconfirmed speculation.
Drug firms including AstraZeneca have been on the acquisition trail to bulk up their medicine cabinets as older drugs lose their patents.
The Shire takeover of Baxalta has raised the prospect of it overtaking AstraZeneca, which has a market capitalisation of about £51.86bn, as the second largest player in the UK drug industry. AstraZeneca shares rose 5p to 3911p in London lunchtime trading.
Elsewhere, housebuilder Redrow (LON:RDW) subsided 22.8p, or 5.4%, to 399.2p after unveiling higher profits but saying the central London property market was slowing down.
Security services firm Westminster Group advanced 0.5p to 18p as it revealed it was set for an extra revenue stream - as cargo screening operations began at Freetown International Airport in Sierra Leone.
*Remember, Proactive is reporting the hot market topics being discussed by traders and bankers - it is not market fact. Neither is it an invitation to trade on the information.
London's top flight started Tuesday in see-saw mode after Asia turbulence and downbeat German economic data.
The FTSE 100 Index began the session on the front foot, then dropped 3.4 points to 5685 after Japanese bank stocks took a hit from economic jitters.
Japan's benchmark 10-year bond yield entered negative territory for the first time and the Nikkei dropped nearly 919 points.
Back in Europe, figures showed Germany's industrial production in December falling to lows not seen in four months.
In the UK, like-for-like retail sales were 2.6% higher year-on-year in January, well above the consensus of 0.3%, according to figures from the British Retail Consortium. The year-on-year growth rate was the strongest since September.
Samuel Tombs at Pantheon Macroeconomics said: "Confident consumers are continuing to spend all the windfall from lower oil prices."
In the markets, graphics chip-maker Imagination Technologies (LON:IMG) gained some respite after Monday's fall following news that its chief executive was leaving and it expected annual losses. The shares jumped 9.75p, or 7.5%, to 139p.
Tungsten Corp (LON:TUNG) shed 2.75p to 63p after the electronic invoicing company said it was trading in line and full-year revenue should broadly match previous guidance.
UK shares are poised for another turbulent day as investor confidence is shot to bits and after sharp losses in US and Europe.
The FTSE100 closed down 2.72% yesterday at 5,689, with banks taking a hit, while the Dow Jones on Wall Street closed 178 points lower. The broader-based S&P500 index lost 27 to 1,855.
The index was called by financial spread-betters at IG to continue the decline and open around 16 points lower.
In Japan, while other Asian markets are closed, including China, shares fell off the cliff - with the Nikkei 225 plummeting 5.41% to 16,085.
The benchmark ten year bond yield in Japan went into negative territory for the first time.
The sinking global markets since the new year has been big news and many are beginning to view it as a loss of faith in the actions of Central Banks to help prop up countries' economies.
Chris Weston, at IG, said: "It almost feels as though the markets are pushing central banks into some kind of action, but they don’t know exactly what it is they want.
"Deeper negative rates could have untold, dire consequences.
"Further balance sheet expansion through QE could only lead to more disappointment and an even deeper credibility issue, not to mention dislocations in markets.
"What we are seeing is a ferocious destruction of wealth and confidence, with some rather powerful bearish trends developing. Traders and investors need to adapt, if they haven’t done so already."
So a stormy day on the cards ahead. On the corporate front, we have a quarterly update from travel group TUI AG (LON:TUI) to look forward to.