Europe midday: Resources and energy stocks pace the decline as oil slides

European stocks fell sharply on Wednesday, with resources and energy issues pacing the decline as oil prices resumed their slide.

At midday, the benchmark Stoxx Europe 600 index was down 3%, France’s CAC 40 was off 3.3% and Germany’s DAX was 2.9% weaker.

Meanwhile, Italy’s FTSE MIB slumped 3.4% as bank stocks tanked again. Banco Popolare, UniCredit and Intesa Sanpaolo were all firmly in the red after data from banking lobby ABI showed banks’ bad loans rose in November.

Market regular Consob extended a ban on short-selling of Monte dei Paschi di Siena until Thursday.

Shares in Asia dropped. China’s Shanghai Composite fell 1%, Hong Kong’s Hang Seng lost 3.8% and Japan’s Nikkei 225 ended 3.7% lower, entering a bear market.

Meanwhile, oil prices were under pressure again, hitting fresh 12-year lows. West Texas Intermediate was down 3% at $27.61 and Brent crude was 2.2% lower at $28.14.

On Wednesday the International Energy Agency warned that oil markets could “down in oversupply”, adding that Iran’s return to the market was unlikely to be balanced out by production cuts from other countries.

The IAE reckons oil markets will still have a surplus of 1.5m barrels a day in the first half of this year.

“A return to the template of an overnight Chinese selloff has dented European optimism, causing markets to tumble. The aggressive nature of this morning’s selloff highlights how fragile confidence in 2016 has been. Once again, the financial world’s focus will be on the Alps as Davos hosts its annual World Economic Forum,” said Alastair McCaig, market analyst at IG.

“Oil remains below $29 a barrel and looks more inclined to test the limits of how low it can go, rather than find any traction regardless of the consequences.”

Resources and energy stocks suffered the brunt of the losses, with the Stoxx 600 index for basic resources down 4% and the sub-index for oil and gas 3.7% lower.

In corporate news, BHP Billiton was under the cosh after the miner cut its iron ore production guidance in the wake of the Samarco disaster.

Shell was also in the red after the oil major said its profit fell by up to 50% in the fourth quarter and announced plans to cut up to 10,000 jobs in a cost-cutting drive.

Shares in Zurich Insurance tumbled after it issued a profit warning on the back of the winter storms in the UK and Ireland.

Still to come in terms of data, US CPI and housing starts are at 1330 GMT.