And finally, Wall Street has closed firmly in the red.

The sharp rises in government bond yields drove the markets lower, although shares did claw their way back from earlier lows.

Marketwatch explains:

The Dow finished down by about 200 points, or 0.8%, to 27,627, but had been down by as many as 357 points, or 1.3% at session lows.

Still, Thursday’s decline for the blue-chip gauge amounted to its worst since July 11, according to FactSet data.

Goodnight! GW

The scene on Wall Street today:

Wall Street is on track for its worst day in several months.

The Dow Jones industrial average is currently down 325 points or 1.2% at 26,504 points. Quite a bump, given it hit a record high yesterday.

Mark DeCambre of Marketwatch says:

A drop of that severity would mark the blue-chip benchmark’s worst one-day decline since about May 29, according to FactSet data.

He too blames bond volatility:

The slump comes as the 10-year Treasury yield has punched up to seven-year highs at 3.21%, causing investors in stocks to reassess the comparative appeal of equities, considered risky assets, against so-called risk-free government debt.

After a bad day, Britain’s FTSE 1oo closed down 91 points or 1.2%, at 7418.

The French CAC also suffered, losing 1.5%.

The sell off on Wall Street is gathering pace too:

Fiona Cincotta of City Index confirms that rising bond yields (as prices fall) has rattled stock markets:

Bond yields are rising and the stock markets are getting worried.

With the US economy powering ahead and the Federal Reserve all but certain to raise interest rates in December and then next year US Treasury yields started rising at great speed this week. Although all the factors like strong economic data and the Fed’s policy signals have been in place for a while now, the absence of trade disputes whiplash and the first signs of worry that US stocks are overbought came together and triggered Thursday’s U-turn in US stocks

Greece’s finance minister has been forced to defend his country’s bank performance today after lenders’ shares nosedived on fears of bad loans this week.

Addressing parliament Euclid Tsakalotos said Greece’s high stock of non-performing loans was “totally manageable.” The government, he said was in constant discussion about the best ways of dealing with bad debt holdings amid fears that banks are not stabilising fast enough.

His comments follow an eye-popping sell off of bank shares.

On Wednesday the FTSE Athex banks index dropped by as much as 18 percent, with Piraeus Bank shares reeling to their lowest level ever after its CEO let slip in an interview that the lender was considering issuing debt to boost capital.

If that weren’t bad enough any desire that Athens may have had to return to international borrowing markets after years depending on bailout funds also seems to have been nipped in the bud with spreads on Greek bonds deemed too high to make a market foray in the coming months. After exiting its third and final bailout in August, the leftist led government was hoping the country would return to markets this year.

Bond markets have woken up to the strength of the US economy, and the likelihood of several more rate rises in the coming quarters.

So says Will Hobbs of Barclays Smart Investor, who adds that investors shouldn’t panic, despite shares, bonds and many currencies falling today:

We suspect the fact that the bond market is taking what amounts to a more positive view on the prospects for US economic growth is a positive for the world economy, emerging markets included. With this in mind, we actually added to emerging market equities this week in our tactical portfolio, taking profit on our long held overweight position in US stocks.

We still cannot see the next global recession on the horizon. Our main indicators are telling us quite clearly that for the next 6 – 12 months, portfolios should still be focused on stocks, in both emerging and developed worlds, over high quality corporate and government bonds. The run into Christmas will no doubt give us plenty of jarring political and economic headlines to digest, but our view remains that it is the continuing health of the US and global economy that matters most for capital markets.

A broad based sell-off swept across Europe today, says David Madden of CMC Markets, triggered by falling bond prices.

The prospect of four rate hikes from the Federal Reserve in the next 12 months, is driving up US government bond yields. Traders are worried that EM counties will be hit by higher borrowing costs, and in turn it could damage their economies. The Indian rupee has reached another record low, and the Turkish lira is weaker too as investors are fearful we could be heading for an EM crisis.

Newsflash from America: US factory orders have posted their fastest rise in almost a year.

Manufacturing orders rose by 2.3% in August, faster than expected, led by a rise in aircraft sales.

It’s the strongest gain since September 2017, and another sign that America’s economy is looking strong, despite the trade war with China.

If you’re just tuning in, here’s the Press Association’s take:

Demand for new cars fell by around 20% in September, according to an industry body.

The Society of Motor Manufacturers and Traders (SMMT) said around 339,000 new cars were registered during what is normally one of the industry’s strongest months due to the release of new number plates.

Diesel and petrol registrations were down year-on-year, with a modest rise for alternatively fuelled cars such as pure electrics and hybrids.

The SMMT said the decline was mainly due to changes to the way new cars are tested, with tougher emissions regulations introduced in the European Union.

The organisation’s chief executive Mike Hawes told BBC Radio 4’s Today programme: “This year we’ve had the first major change in the way you test vehicles - the first change in about 30 years.

“That has led to some major challenges in terms of supply because you’ve got to change the entire European model range, put them through the test, and that takes a considerable amount of time.

“Some manufacturers have had short supply which has meant sales have been down.”
Mr Hawes added that “demand is down a bit” due to a drop in business and consumer confidence due to uncertainty over Brexit.

The EY Item Club believe Brexit worries and weak consumer confidence are weighing on car sales - even setting aside the disruption caused by the new emission test regime.

They say:

• Private sales could be hampered by consumer purchasing power, which is only improving slowly. Meanwhile, consumer confidence is still relatively fragile with consumers cautious about making major purchases. Indeed consumer confidence fell in September according to the GfK measure.
• Furthermore, recently higher petrol and diesel prices are hardly the best news for the automotive sector, although they do increase interest in more fuel efficient cars and alternatively fuelled vehicles.
• Businesses may also be cautious in their car purchases amid significant economic and Brexit uncertainties. Some businesses may choose to delay replacing their vehicles, until the outlook becomes clearer.

Here’s our news story about the UK car industry’s mensis horribilis:

UK sales of new cars plunged by a fifth in September as new emissions tests caused delivery backlogs, while waning appetite for diesel cars and weaker consumer confidence weighed on demand.

A total of 338,834 new cars were sold last month, according to figures from the Society of Motor Manufacturers and Traders (SMMT), down 20.5% compared with the same month last year.

September is traditionally a bumper month for sales as consumers rush to buy cars with new number plates.

However, the SMMT said new and more rigorous emissions testing rules created supply problems and a backlog of deliveries as car manufacturerssuffered delays in getting their cars approved....

More here:

Last month’s car sales slump is the worst in a decade.

The SMMT tells us that the last time UK car registrations fell by 20% or more in any September was during the recession in September 2008 (when they shrank by 21.2%).

The last time sales fell by over 20% in ANY month was October 2010 (-22.2%), partly because sales in October 2009 had been boosted by a vehicle scrappage scheme.

Bank bosses are also fretting about the impact of a no-deal Brexit.

Ross McEwan, CEO of Royal Bank of Scotland, claimed today that a “bad Brexit” could tip the UK into a recession.

He warned:

“We are assuming 1-1.5% growth for next year, but if we get a bad Brexit then that could be zero or negative, and that would affect our profitability and our share price.”

The UK government still owns more than 60% of RBS, following its rescue a decade ago. Its share price is already languishing way below the break-even level.

Thanks to September’s slump, UK car sales have shrunk by 7% during 2018.

UK consumers and businesses have bought 1.91 million new vehicles since the start of the year, compared to 2.06 million at the same time a year ago.

That’s partly due to the 20% contraction in September - usually a big month for new car sales due to the number place change.

But the decline goes deeper too, and highlights how consumer and business confidence is fragile.

Ana Nicholls, automotive analyst at the Economist Intelligence Unit, predicts that sales will bottom out next year, IF a chaotic Brexit is avoided:

The EIU’s core forecast is still that the UK will get an EU trade deal in 2021, after a transition period. If that happens, then the current drop in UK car sales should level out in 2019, with some modest growth in 2020-22 that should help to tide the industry over any disruption.

But the risks of a no-deal Brexit have risen in the past month, and that could make conditions in the auto industry much more difficult.”

It’s not just car dealers who are struggling to find buyers.

UK furniture group DFS has reported a 50% tumble in profits for the last year today.

It blamed a “exceptional downturn in market demand” over the summer (partly because it was too hot to go furniture shopping).

DFS (no stranger to a sale) also warned that Brexit uncertainty is hurting consumers.

Overall we expect the market to remain subdued into 2019, constrained by political risk and weak consumer sentiment...

The group continues to face a particularly uncertain UK consumer market in the run up to Brexit in March next year.

Chris Brook-Carter, managing director of Retail Week, says the drop in car sales is a worrying economic signal:

September’s car sales shocker will have sent a “collective ouch” echoing through the industry, says Ian Gilmartin, Head of Retail & Wholesale at Barclays Corporate Banking:

He adds:

With car manufacturers focused on ensuring they are in line with new regulations and given the reluctance of buyers to commit to big purchases, in part due to Brexit uncertainty, it does look likely that as year-end approaches we’ll be down on 2017 for full-year sales.”

Disappointingly, even electric cars got caught up in the September malaise on Britain’s forecourts.

Sales of alternatively fuelled vehicles only rose by 3.9% year-on-year to 23,507, having been rising by over 20% since January.

Diesel sales took a major thump, though, down 42% year-on-year to 98,191 from 170,733 in September 2017. They’ve been firmly out of fashion since the VW emissions scandal showed that diesel cars were rather more polluting than claimed.

Ian Plummer, Auto Trader director, points out that Brexit uncertainty has also hurt the car industry this year.

“September’s performance was a matter of basic economics; there simply weren’t enough cars on forecourts that met the new WLTP standards for retailers to sell....

“2018 has been very challenging for both retailers and manufacturers, with the fuel debate and Brexit anxieties denting consumer confidence, and inflationary pressure on exchange rates, hitting profits.

In another blow for Volkswagen, sales of its Audi brand slumped by 53% in the UK last month.

Other major carmakers also found September challenging, amid the struggle to meet new emissions tests.

Nissan sales slumped by 41%, casting another shadow over the carmaker just hours after it warned about the impact of Brexit this morning.

Ford’s sales fell by 16% (slightly better than average), while Honda dropped 26%, but BMW’s sales only dipped by 11%.

Vauxhall did creditably, with sales only down 7%, while Toyota sales were flat.

Sean Kemple, Director of Sales at Close Brothers Motor Finance, says ignorance about these new EU emission tests have hurt the car sector:

The lack of knowledge around the new legislation has proven detrimental to sales. Dealers who traditionally reap the rewards of the new number plates struggled to stay buoyant as motorists held off buying for now.

Mike Hawes, SMMT chief executive, says car sale across Europe have been hit by the new emissions tests brought in to clean up the industry.

“With the industry given barely a year to reapprove the entire European model line-up, it’s no surprise that we’ve seen bottlenecks and a squeeze on supply. These are exceptional circumstances with similar declines seen in other major European markets.

The good news is that, as backlogs ease, consumers and businesses can look forward to a raft of exciting high-tech cars and a market keen to recover lost momentum.”

Why did emissions tests cause such gloom at Britain’s car dealers last month?

Well, the Worldwide Harmonised Light Vehicle Test Procedure is a longer, tougher examination of a new car. Brought in after the Volkswagen emission-cheating scandal, it is meant to show motorists how much fuel a car actually uses, and how much pollutants are pumped out.

So what’s the problem?

Every model sold by car manufacturers now has to be tested, leading to bottlenecks at testing centres. If a model hasn’t been tested, it can’t be sold.

This seems to have led to a surge in sales in August, as manufacturers and vendors tried to shift cars before WLTP came into effect.

What did the new tests show?

Cars are less efficient, and more polluting, than previously admitted. That may have prompted some manufacturers to suspend sales while they tweak their models’ performance.

As Autotrader explained earlier this week:

While the actual amount of fuel cars burn (and the volume of pollutants they emit) when driven on the road by motorists hasn’t changed, the new criteria mean that during official efficiency assessments, higher readings are recorded.

This has led to worse on-paper fuel economy figures for almost every new car on sale in the UK, and higher recorded CO2 emissions, too. Experts estimate measured CO2 emissions have risen between 13 and 22 per cent under WLTP tests when compared to NEDC assessments, for example.

In other car news, Japan’s Nissan has warned that a no-deal Brexit would cause major disruption to its huge manufacturing operation in the north-east of England.

It says:

Today we are among those companies with major investments in the UK who are still waiting for clarity on what the future trading relationship between the UK and the EU will look like.

As a sudden change from those rules to the rules of the World Trading Organization will have serious implications for British industry, we urge UK and EU negotiators to work collaboratively towards an orderly balanced Brexit that will continue to encourage mutually beneficial trade.”

The statement was released as the Guardian published a Long Read about Nissan today.

My colleague David Conn has visited its Sunderland plant, and learned about how the firms ‘just-in-time’ supply chain would be hamstrung by new trade barriers with Europe.

It’s a worrying time for staff too, Conn explains:

In the referendum, 61% of Sunderland’s voters chose leave. When I visited the plant recently, I talked to several workers as they came off a shift. Most had voted leave. One young man, 24, who, like the others I spoke to, did not want to be named, said he had voted remain because he preferred stability and he “thought we’re fine as we are”, but that older workers around him had voted leave. “They said that they didn’t see a change from before and after we joined the EU, and some said they didn’t like the EU making rules for us.”

An older man, 55, pointed to one of the huge sheds behind us and said, like others, that Nissan’s multi-million pound investment in it shows the Sunderland plant is secure. He said he had voted leave to stop immigration, “EU interference”, and because the north-east gets “bugger all money” from the EU.

More here:

Here’s an example of how the new car emissions tests have led to disruption:

The BBC’s Sean Farrington has pulled together a range of reasons for the slide in car sales: