Europe close: Banks pummeled as central banks step into FX markets

European stocks took a battering on Thursday, with banks and energy issues pacing the decline, as oil prices slid, investors fled to safety, and some central banks moved to offset strength in their currencies.

The benchmark DJ Stoxx Europe 600 index was down 3.68%, Germany’s DAX was off 2.93% and France’s CAC 40 was 4.05% weaker.

A decision by Sweden’s central bank earlier in the day to cut interest rates sparked ‘market chatter’ that global central banks were in a ‘race to the bottom’.

Shortly after, a spike in dollar/yen would be attributed to open currency interventions by Japanese authorities.

As the ‘risk-off’ mood gripped markets, investors sought safe havens, pushing gold prices to a nine-month high. Spot gold was up 2.5% to $1,226.43 an ounce.

Some strategists, such as those at Credit Suisse and UBS, sounded a cheery note, with Andrew Garthwaite, at the former, telling clients that banks’ valuations were now “appealing” and that crude oil prices had hit a bottom.

For its part, strategists at UBS said they were seeing numerous signs of a so-called ‘capitulation’ in markets, which herald that short-term gains were just around the corner if they were correct.

Yields on the German 10-year Bunds were down 0.04 of a percentage point to 0.204 and that on the benchmark 10-year US Treasury note by 0.09 percentage points to 1.586%, according to Bloomberg data. Yields move inversely to prices.

Energy shares were hammered, with the Stoxx 600 oil and gas index down 3.68% as oil prices declined. In parallel, a gauge of energy stocks was down by 3.68%. West Texas Intermediate was down 1.78% at $26.97 a barrel while Brent crude was 1.18% lower at $30.48.

Banks suffered the brunt of the losses, however, with the sub-index for the sector 5.98% weaker amid worries over whether they will be able to cope with low interest rates, which make it more difficult for banks to make a profit on their lending.

StanChart shares fell to their lowest level since 1998.

France’s Societe Generale led the fall, tumbling 12.57% after it reported a smaller-than-expected rise in fourth quarter net profit and warned that it might miss its profit target this year.

Deutsche Bank was under pressure again, with shares down 4.5% while prices for credit default swaps – which offer protection against the risk of a bond defaulting – rose, amid growing concern about the bank’s credit.

Meanwhile, miners were the standout losers on the FTSE 100, with Rio Tinto, Glencore and BHP Billiton all suffering heavy losses.

Glencore said on Thursday that it has agreed a $500m gold and silver steaming deal from its Antapaccay mine in Peru to help ease its balance sheet woe.

Rio Tinto reported a 27% drop in consolidated sales revenues to $34.8bn and a 52% decline in underlying earnings to $4.5bn in its full year results.

Elsewhere, Zurich Insurance was under the cosh after it posted a bigger-than-expected loss and warned over its 2016 targets.

Finland’s Nokia slid following the release of its fourth quarter results, as sales missed analysts’ expectations.

Shares in oil and gas major Total dropped despite its fourth quarter numbers beating expectations.

French corporate and investment bank Natixis bucked the trend after agreeing to buy a majority stake in independent adviser Peter J Solomon.

Adidas was also in the black as its 2015 results beat expectations and the company lifted its outlook.