Stocks stabilise as credit risk eases, oil up

10/02/2016 05:56 AST

European stocks showed signs of stabilising after a six-day selloff as measures of credit risk eased after Deutsche Bank AG reassured investors that it had enough funds to pay coupons on its riskiest debt. German bonds fell and the yen trimmed an advance that sent it to the strongest level since 2014.

The Stoxx Europe 600 Index was little changed after closing Monday at its lowest level since 2014, and US equity-index futures were also steady.

European indexes of credit-default swaps on corporate debt fell for the first time in more than a week, Germany’s 10-year bund yield climbed the most this year and crude in New York rose above $30 a barrel.

Equities in Tokyo slumped earlier by the most since August and the yield on 10- year Japanese government bonds turned negative for the first time.

Concern about the pace of global growth flared in credit markets on Monday, with the cost of protecting against company defaults worldwide surging before Deutsche Bank’s moves to soothe investors.

Policy makers have also stepped up attempts to calm markets, with Japanese Finance Minister Taro Aso saying officials would closely watch currencies, while European Central Bank Executive Board member Benoit Coeure reiterated that further stimulus is possible.

Markets in mainland China, Hong Kong, South Korea, Malaysia, Singapore and Taiwan were closed for the New Year holiday Tuesday.

The Stoxx Europe 600 Indexwhipsawed in morning trading, falling as much as 0.8 per cent before recovering all the losses as of 10:44 am London time. The index trades at 13.9 times estimated earnings, about 20 per cent below its April 2015 peak.

While Deutsche Bank shares added 1.2 per cent after sliding 9.5 per cent on Monday, the cost of insuring its bonds against default increased to the highest since 2011. The German bank tumbled 9.5 per cent on Monday after analysts at CreditSights said it may struggle to pay coupons on its riskiest bonds next year should operating results disappoint or the cost of litigation be higher than expected.

Futures on the Standard & Poor’s 500 Index expiring in March slipped less than 0.1 per cent, after the index slid to a 22-month low as a second straight selloff pushed bank shares to the lowest since 2013.

European indexes of credit-default swaps on corporate debt fell after reaching the highest since 2013 on Monday. The Markit iTraxx Europe Index of swaps on investment-grade companies dropped two basis points to 118 basis points.

Credit-default swaps tied to the Deutsche Bank’s senior debt rose for an eighth day in row, climbing six basis points to 226 basis points, according to data compiled by Bloomberg. Swaps on junior bonds rose three basis points to 441 basis points. Both contracts have doubled in about three weeks. Germany’s 10-year bund yield rose four basis points to 0.26 per cent, the biggest increase since Dec.29, after touching 0.19 per cent, the lowest since April.

The Gulf Today