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LONDON (Alliance News) - Markets remained on edge midday Tuesday as investors contended with negative sentiment from Japan and the absence of any key economic data to drive sentiment.
Global economic fears have been putting pressure on equities and after declines in Europe and Wall Street on Monday, Tokyo joined the selling, with the Nikkei 225 index ending down 5.4% on Tuesday. The stock index fell after the yen briefly strengthened past the JPY115 per dollar level for the first time since 2014. Japan relies on a weak yen to support exports and maintain the country's trade surplus.
Japanese Finance Minister Taro Aso indicated the government's concern over the yen's "rough" rise and said he will continue to closely watch the currency. Worries about the yen saw Japanese government bond yields hit record lows as nervous investors scramble into safe-haven assets.
"The 5% plunge in the Nikkei and 10 year JGB's falling into the negative for the first time is a continuation of the risk-off trading that began with a sell-off in European banks on Monday. Japanese investors have lost faith in the Bank of Japan as a backstop for the stock market and have flooded into the relative safety of Japanese bonds," said CMC Markets analyst Jasper Lawler.
Chinese stock markets remained closed Tuesday for Lunar New Year.
In London, after modest gains in the morning, the FTSE 100 index traded down 0.3% at 5,675.63 by midday. The FTSE 250 was down 1.0% at 15,338.10 points, and the AIM All-Share was down 0.6% at 677.12. In Europe, the CAC 40 in Paris was down 0.9%, while the DAX 30 in Frankfurt was down 0.6%.
Ahead of the trading session in New York, futures pointed Wall Street lower. The DJIA, S&P 500 and Nasdaq 100 also were indicated down 0.6%. Prior to the New York open, Coca-Cola reported a 13% year-on-year drop in fourth quarter earnings. Walt Disney follows after the market close.
Talk of global economic slowdown and the possibility of another recession continued to weigh on the UK's banking sector, which fell on Monday alongside its European counterparts.
Craig Erlam, senior market analyst for Oanda, said the European banking sector is a concern for investors as negative interest rates and rising non-performing loans put 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," Erlam added.
The weakness in banks and global growth had also weighed on the shares of FTSE 100-listed payments processor Worldpay Group, which traded down 3.7% after falling 8.7% on Monday.
However, Mike van Dulken, head of research at Accendo Markets believes concerns have been overdone and global consumption will continue to support the company.
"Given the economic transition to consumption from export-led in China, and an increasing move to a global service and cash-less economy, the outlook for Worldpay Group remains favourable with positive fundamentals and strong growth drivers endorsed by partnerships with both Mastercard and Visa," van Dulken said.
"Furthermore the current environment of low interest rates and faith in accommodative central bank policy should maintain consumer confidence a good while longer," he added.
Miners were the worst performers in the blue-chip index on Tuesday after a note by Goldman Sachs in which it cut its price target on Anglo American, which traded down 9.6%, Rio Tinto, down 6.6%, and BHP Billiton, down 5.2%. The US investment bank also cut its rating on copper miner Antofagasta to Sell from Neutral, whose shares were down 9.4%.
Legal & General Group was the best performer in the FTSE 100, up 2.5% after the details of its bond portfolio ahead of its earnings for 2015 were well received by the market.
After inquiries from sell-side analysts and investors, the life insurer and investment manager said the bond portfolio backing its annuity business amounted to GBP39.0 billion at the end of 2015, versus GBP40.7 billion at the end of 2014.
Within its retirement arm, 4.4% of the bond portfolio was rated AAA, the top rating. About 28% of the portfolio was rated AA, around 33% at A and 31% at BBB. Bonds rated BB or below made up 3.2% of the portfolio.
Tesco shares traded up 2.4% after the latest figures released by Kantar Worldpanel showed the company's sales fell 1.6% to GBP7.76 billion in the 12 weeks ended January 31. However, Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel said this was the best figure the retailer has posted since September last year.
Tesco's market share slipped to 28.5% from 29.0%.
J Sainsbury continued its trend of being the only one of the UK big four supermarkets to achieve sales growth for the sixth period in a row.
Sainsbury's sales for the 12 weeks ended January 31 grew 0.6% year-on-year to GBP4.58 billion from GBP4.55 billion, as its market share rose slightly to 16.8% from 16.7%. The company's shares traded up 0.5%.
TUI Group was down 2.4% after it reported a narrower first-quarter underlying loss before interest, tax and amortisation, but saw a 40% decline in demand for summer bookings to Turkey.
Sophos Group was the worst performer in the FTSE 250, down 10%, even though the security software and hardware developer saw higher billings and revenue in the third quarter of its financial year.
Like-for-like billings in the three months to December 31 grew 17% year-on-year to USD141.3 million from USD127.7 million. On a reported basis, the increase was 11%.
Sophos said it achieved growth across all major regions and product categories, but that reported billings were hit by significant currency headwinds including the weakening of the euro and pound against the dollar.
Still ahead in the economic calendar, the US Redbook index is due at 1355 GMT, while JOLTS job openings data are at 1500 GMT.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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