European stocks recover; Asia dives on recession fears

Stock markets in Europe attempted to recover on Wednesday, aided by steadier oil prices and banking shares, but only after Asia sank again on fears of another banking crisis and global recession.

World oil prices firmed but remain perilously close to recent 12-year lows, one day after the International Energy Agency warned the global surplus would be larger than previously thought in the first half of 2016.

In late morning deals, Frankfurt and Paris stocks jumped about 2.3 percent and London won 1.3 percent, while star performer Milan surged by 5.0 percent, but analysts warned the upwards trajectory might not last.

"Europe (is) trying to rally, with financials trying to lead the charge after their recent falls," said Russ Mould, investment director at trading firm AJ Bell.

"Whether this proves to be nothing more than a dead-cat bounce remains to be seen -- but given the possible link between oil and banking stocks, any sustained upward movement in crude would be welcome," he told AFP.

- Deutsche Bank surges -

The German market was also buoyed by Deutsche Bank, whose share price soared on speculation it may be considering a bond buyback programme to help ease concern about its funds.

Shares in Germany's biggest lender -- which had shed about 13 percent over the course of Monday and Tuesday  -- rallied 13.95 percent to 15.08 euros.

Media reports have suggested it is considering a bond buyback, but a bank spokesman declined to comment.

Deutsche Bank shares, along with those of other European lenders, have taken a severe bashing this week.

Markets remain cautious over the outlook for banking sector profitability, according to CMC Markets analyst Michael Hewson.

"Equity markets are trading cautiously ... after three days of losses brought on by concerns surrounding the profitability and resilience of the banking sector, particularly in Europe," Hewson added.

"The imposition of negative rates by the European Central Bank and other central banks has raised concerns that they could have a toxic effect on bank margins at a time of slowing growth at a time when banks are being expected to bolster their balance sheets.

"With no effective back-stop mechanism in place for European banks, this is raising concerns about the overall stability of the European banking sector as a whole."

Asian stocks took another battering Wednesday, with Tokyo suffering sharp losses.
More bourses reopened after the Lunar New Year break but immediately plunged into the red, playing catch-up with a rout that has seen billions wiped off valuations across the globe so far this year.

Russ Mould warned that investors were pricing in for another potential recession -- with economic stormclouds on the horizon -- and added that cheap debt was a "key" issue.

- 'Key problem remains debt' -

"Markets have switched from pricing in an ongoing economic upturn to worrying about a renewed global downturn and even deflation," he told AFP.

"As such, falling bank shares, concerns over China’s financial markets and a fresh plunge in the price of oil are symptoms, not causes in their own right.

"The key problem remains debt – there is too much of it. In addition, cheap debt has funded booms in Chinese construction and commodity consumption and US shale oil production, resulting in oversupply and then inevitable cutbacks and retrenchment."

The latest Asian sell-off is the latest in the past six weeks that has seen severe volatility around the world, fuelled by China's growth slowdown and a crash in crude prices.

The Chicago Board Options Exchange Volatility Index, which measures market turbulence, is sitting around five-month highs and has jumped 20 percent since Friday.

Japan's Nikkei index lost 2.3 percent to close at its lowest level since October 2014, extending Tuesday's 5.4-percent collapse.

- Key figures around 1100 GMT -

London - FTSE 100: UP 1.3 percent at 5,702.2 points

Frankfurt - DAX 30: UP 2.3 percent at 9,076.3

Paris - CAC 40: UP 2.3 percent at 4,088

Milan - FTSE MIB: UP 5.0 percent at 16,709

EURO STOXX 50: UP 2.7 percent at 2,809.7

Tokyo - Nikkei 225: DOWN 2.3 percent at 15,713.39 (close)

New York - Dow: DOWN 0.1 percent at 16,014.38 (close)

Euro/dollar: DOWN at $1.1247 from $1.1293 on Tuesday