Europe close: Bank stocks lead losses again

Banks dragged the main European stockmarket indices lower again on Tuesday, with investors cautious amid on-going concerns over global growth and the possibility that tensions in some credit markets might be feeding-through into stocks.

The benchmark DJ Stoxx Europe 600 index was down 1.58% by the close of trading, Germany’s DAX was 1.11% lower and France’s CAC 40 was off by 1.69%.

That followed on from a weak session in Asia, where Japan’s Nikkei 225 closed down 5.4%.

The Stoxx 600 banks sub-index surrendered 3.71% as a retreat in Italian and German bank stocks weighed.

Italy’s FTSE MIB underperformed its European peers, retreating by 3.21%. Stock in Banca Popolare di Milano was deeply in the red despite saying net profit rose 24% in 2015.

Deutsche Bank lost another 5.5% even after the lender’s chief reassured staff its balance sheet was ‘rock-solid’.

Some market watchers were worried the German lender might be impacted by recent tensions in the market for so-called ‘high yield’ issued by US energy companies.

By the close of trading, oil futures were again moving quickly lower, with West Texas Intermediate down by 2.03% to $29.10 a barrel and Brent crude 3.6% lower at $31.73.

“Another concern for investors continues to be the European banking sector as negative interest rates and rising non-performing loans put increasing pressure on profit margins and banks’ ability to meet capital requirements.

“With the banking crisis of recent years still fresh in the memory, there are real fears that the banks face big challenges this year.

Moreover, the Eurozone recovery – what little we are actually seeing – could be threatened by any renewed weakening in the banking sector and drying up of credit. This is just the latest in a long list of global economic headwinds that have weighed heavily on markets this year,” said Craig Erlam, senior market analyst at Oanda.

Much weaker-than-expected German economic data added to the negative mood on Tuesday, as figures from the country’s Economy Ministry showed industrial production unexpectedly fell in December.

Output was down 1.2% from the previous month, when it dropped a revised 0.1%, versus economists’ expectations for a 0.5% rise.

In terms of individual stocks, tour operator TUI AG was under the cosh after it reaffirmed its 2016 earnings guidance but reported a wider net loss for the first quarter.

Pandora fell sharply. Although the Danish jewellery maker lifted its dividend and reported a rise in fourth quarter net profit, the results were below analysts’ expectations.

Shares in Sanofi also slipped after the French drugs maker posted a drop in fourth quarter net income but said 2016 earnings per share were likely to be stable.

Biotechnology firm Actelion was in the black after reporting a 9% increase in 2015 core earnings.

Vestas Wind Systems was also higher after revealing better-than-expected fourth quarter revenue and upping its dividend.

Legal & General rallied in London after the insurer and investment manager updated the market with details of its annuity bond portfolio.

Supermarket retailer J Sainsbury was also a high riser after market research firm Kantar said it was continuing to outperform the industry.