Stock market rout intensifies amid fears central banks are 'out of ammunition'

Stock markets in Asia Pacific fell heavily on Wednesday with investors fearing that central bankers were “out of ammunition” and unable to intervene to stop a global rout.

As fresh fears about the banking system added to concerns about the wider global economy, the Nikkei average in Japan fell 2.3% to a 16-month low with concern about the strength of banks and a stronger yen pulling the market down.

In Australia, banking and mining stocks led the Australian ASX/S&P200 index into bear territory and its lowest level since 2013. The Chinese markets are closed this week for the lunar new year holidays.

European shares were expected to fall at the opening on Wednesday morning, according to futures trading.

One analyst said markets could be seeing the start of the “final capitulation” as the attempt by central banks to stimulate growth with cheap money since the global financial crisis in 2008 had run its course.

“The artificial support from central banks is at a crossroads,” said Evan Lucas, of IG in Melbourne. “Central bank intervention will no longer create the holding pattern of the past year; markets now believe banks are out of ammunition.”

He said that the so-called quantitative easing policies pursued by central banks in the US, Japan , Europe and the UK had inflated share prices artificially, especially banking stocks, which were now facing a “global crisis”.

The problems were highlighted by the Japanese market where stocks have fallen to a 15-month low since the Bank of Japan’s announcement last month to force interest rates below zero.

The yen touched 15-month highs on Wednesday, making Japanese exports less competitive, and the opposite impact intended by the BoJ’s dramatic move.

There was also concern about the strength of Europe’s banks in particular after the chief executive of Deutsche Bank was forced to reassure staff that the bank was “rock solid”.

“The BOJ has pulled a trigger of competitive monetary easing in the global market,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

“The problems led to weakening fundamentals in the Japanese market. It shows that the Abenomics rally has come to an end,” he said, referring to the prime minister Shinzo Abe’s attempts to lift the economy out of 20 years of stagnation.

There was a glimmer of hope for markets as crude oil prices pushed higher on Wednesday after Iran said it was open to cooperation with Saudi Arabia, partly recovering from an 8% fall in the previous session led by concerns over demand and weak equities.

Iran’s oil minister said Tehran was ready to negotiate with Saudi Arabia over the current conditions in oil markets, suggesting possible production cuts to reduce supply and lift prices.

The International Energy Agency (IEA), however, said the Organisation of Petroleum Exporting Countries (Opec) was unlikely to cut a deal with other producers to reduce ballooning output. It predicted the world would store unwanted oil for most of 2016 as declines in US oil output take time.

Benchmark Brent crude was 2.5% higher at $31.07 a barrel by 2am GMT after falling for the previous four days.

Gold, seen as a safe haven, rose to $1,191.36 an ounce, within reach of a seven-month peak of $1,200.60 struck on Monday.

Almost $20bn was lost from the value of Australian companies on Wednesday as the benchmark ASX/S&P200 fell 1.2%, or 56 points, to 4,775 points, its lowest level since the middle of 2013.

The market has now fallen 20% from its most recent peak in April 2015, making it a bear market . Banks, energy and resources stocks led the way down.

Amid a sea of red, Commonwealth Bank was the only positive among the big four banks after it announced another record cash profit.

Australia’s largest lender lifted its cash profit, the banks’ preferred measure of profitability, by 3.92% to $4.8bn from $4.623bn for the prior corresponding period. The result was slightly higher than analyst consensus of $4.77bn.

CBA said the board had considered the sustainability of its dividend payments in making the decision. “All our stakeholders rely on our stability, particularly when markets are volatile,” chief executive Ian Narev said in a statement.

“Global volatility concerns our customers, and presents challenges here in Australia. We must be cautious, but also remain focused on the long term to ensure that Australia remains a great place to live and to invest.”

Meanwhile, the National Australia Bank and ANZ suffered, down 3.5% and 3.3% respectively. Westpac dropped 2.3% to $28.02.

The mining giants were also helping to drag the market lower. BHP was down 3% at $15.55, while Rio Tinto was about 2% worse off at $41.20.