NEW YORK: Global stock markets are on their shakiest footing in years.

Investors are fleeing stocks and running to safe-havens like bonds and gold, driven by concerns about economic growth and the effectiveness of central banks’ policies.

At the same time, tumbling energy prices are upending the economies of oil-producing countries, further slicing into global economic growth.

Only six weeks ago cheap oil prices were still expected to cushion the global economy, and the Federal Reserve’s decision in December to raise interest rates for the first time since the end of the financial crisis in 2008 was widely seen as a vote of confidence in the world’s largest economy.

In addition to the fall in US stock markets, major stock indexes worldwide have also been hit hard, despite efforts by the Bank of Japan and the European Central Bank to spur growth through lower interest rates.

Large institutions and sovereign wealth funds, who borrowed in euro and yen, have been selling riskier assets, and are now buying back those currencies, undermining central bank efforts.

With Thursday’s decline, the S&P 500 stock index has lost 10.5 per cent so far in 2016, its worst start to a year in history, according to Bespoke Investment Group, an investment advisory in Harrison, New York. The 10-year note’s yield has fallen to 1.63pc, its lowest closing level since May 2013.

Here are some of the chief issues weighing on the market now.

WHAT IS THE BIGGEST REASON FOR THE SELLOFF? The slump in equity prices which began late last year has deepened as banks grapple with negative interest rates in parts of Europe and Japan and the flattening of the US Treasury yield curve.

“One of the new themes in markets is that (quantitative easing) has damaged the banks and that therefore it exacerbates the risk-off environment,” said Steve Englander, managing director and global head of G10 FX strategy at Citigroup in New York.

Negative interest rates on central bank deposits and on government bond yields undermine the traditional ability of banks to profit from the difference between borrowing costs and lending returns.

With a decline of 18pc on the year, S&P 500 financials are by far the worst performing sector in 2016.

While the Federal Reserve has avoided introducing negative rates on reserves, in Congressional testimony on Thursday, Fed Chair Janet Yellen told lawmakers that the Fed would look into negative interest rates if needed. “I wouldn’t take those off the table,” she said.

Published in Dawn, February 14th, 2016