The European stock markets started opening lower for the fifth consecutive session on Tuesday following warnings from the Bank of England about “material risk to U.K. financial stability” from the U.K.’s pension fund dilemma.
Russia Triggers Another Market Woes
The gloomy mood was exacerbated by media stories of new air raid alerts in Ukraine. This comes on the heels of wanton waves of missile strikes on Monday that appeared to indicate another upsurge.
The standard Stoxx 600 had bottomed at 0.5% at 388.14 by 03:45 E.T. In addition, the lesser Eurozone Stoxx 50 slides at 0.4%. The biggest loser among market segments was Russia’s RTS, which shed 1.5% after falling 2% in the previous week.
The FTSE 100 in Western Europe fell 0.7%, while the FTSE 250 midcap index in the United Kingdom fell 0.6%. Furthermore, the DAX in Germany dropped 0.6%, whereas the FTSE MIB 40 slipped 1.4%.
The European markets reacted negatively to news that the German government had changed its position to back the issuance of E.U. debt. The debt was part of the effort to help finance the bloc’s reaction to the natural gas crisis this fall.
However, the news boosted gas prices, with the benchmark front-month Dutch TTF contract soaring close to 5% to 168.14 euros per megawatt hour.
Meanwhile, the banks across Europe failed to perform optimally. This arises because of the Bank of England’s (BOE) warning about the financial markets and the concerns of pension funds engaged in “liability-driven investing.”
The approach has pushed them to buy up safe asset holdings to provide additional margins on long-dated financial derivatives.
Italian banks appear to be the worst hit, as Banco BPM SpA and Unicredit dropped 4.9% and 2.9%, respectively. Two of Germany’s banking giants also slumped significantly. Deutsche Bank and Commerzbank both slipped 3.0%.
China’s COVID Concerns and Dwindling Oil Prices
The global oil market is in a slump as the price of crude oil slipped by 2% amid mounting concerns over new cases of COVID in China.
The president of the World Bank and the International Monetary Fund Managing Director warned on Monday of a possible recession.
Meanwhile, industry players have chipped in with their opinions as oil prices continue to fall. Craig Erlam from OANDA’s brokerage firm noted a rising fear about the market’s direction.
Aside from those concerns, there was also a major concern about a further drop in Chinese demand. As COVID-19 cases resurface, officials in Shanghai and other major cities have increased coronavirus testing.
Oil was also under pressure from a strong USD, which reached multi-year peaks amid concerns about interest rate hikes.
Meanwhile, the strong dollar rate raises oil prices for buyers using other currencies. It also dampens the risk appetite to purchase more oil.
Nonetheless, the tight market has limited the rate of losses after OPEC and its allies agreed to lower their daily production output.
However, according to a Commerzbank report, this risks triggering an undersupply of oil.