After yesterday’s broad “Hillary rally” gains in the US, overnight’s session has seen more risk-on sentiment as European stocks advanced, ignoring some weakness in Asia and especially Japan (Nikkei was down 1.3%) as investors followed every twist of shares of beleaguered lender Deutsche Bank, whose CEO last night assured Bill readers that the bank is not seeking a bailout, which however was contradicted by a Zeit article this morning reporting that Germany may seek as much as s 25% “bailout” stake in a worst case scenario. This report, too, was promptly denied by the German finance ministry, however not before push US equity futures back into the red.

Beyond banking sector worries, investors were looking ahead to U.S. Federal Reserve Chair Janet Yellen’s appearance before a Congressional committee, a speech by European Central Bank President Mario Draghi and a meeting of oil producers in Algiers.

Crude oil climbed before a meeting of major producers in Algiers, even thought Saudi Arabia and Iran have said there’s little chance of an immediate agreement. Nonetheless, Saudi Arabia gave the strongest indication yet it’s ready to compromise with regional rival Iran, potentially paving the way for the first limit on oil production in two years, although a deal is unlikely until OPEC’s next meeting in November. In other words, algos will now be focusing only on OPEC headlines about the November meeting. Khalid Al-Falih, who inherited a chronically oversupplied oil market when he was appointed Saudi energy minister in April, appeared to show more flexibility toward Tehran, saying that Iran, Libya and Nigeria s hould be allowed to “produce at the maximum levels that makes sense”. “The gap between OPEC countries is narrowing in terms of what are the levels at which we will freeze,” Al-Falih said after a long day of bilateral meetings in which Russia played the role of mediator between Riyadh and Tehran. “The opinions are getting very, very close together.” Of course, we’ve heard it all before.

Going back to stocks, the Stoxx Europe 600 climbed for the first time in four days as Deutsche Bank agreed to sell its U.K. insurance unit and Chief Executive Officer John Cryan ruled out a capital increase. Oil stabilized around $45 a barrel before the gathering OPEC members to discuss ways to boost oil prices, including potential output constraints. A gauge of the dollar rose from a two-week low.

Shares in Germany’s biggest lender fell to a record low this week, dragging down European financial stocks, after the U.S. Department of Justice requested $14 billion to settle claims tied to fraudulent mortgage-backed securities. While the bank said it won’t pay anywhere close to that amount, the news fueled doubts over its capital levels and refocused investors on the industry’s faults. Meanwhile, crude prices, a key determinant of global stock moves this year, have been whipsawed over the past week on prospects for an accord to limit production.

“Banks picked up a bit following Cryan’s comments,” said Patrick Spencer vice chairman of equities at Robert W. Baird. “That helped sentiment and the outlook for growth looks reasonable. The oil recovery is helping basic materials.”

[Deutsche Bank has] got an OK CET1 ratio right now and they’ve got to improve it — you can see how asset sales make sense,” Patrick Armstrong, managing partner at Plurimi Wealth, told Bloomberg. “Any equity issuance would be incredibly dilutive right now with the overhang of fines facing Deutsche Bank, so they don’t want to be doing that right now.”

The Stoxx Europe 600 Index added 0.6 percent in early trading, while Deutsche Bank rose 1.8% after agreeing to sell Abbey Life Assurance Co. to Phoenix Group Holdings for 935 million pounds ($1.2 billion).  Bild reported Cryan as saying he hasn’t sought help from German Chancellor Angela Merkel. The government is preparing a contingency plan, according to German newspaper Die Zeit. The bank’s riskiest bonds rose, with 1.75 billion euros of 6 percent additional Tier 1 notes climbing three cents on the euro to 75 cents, the highest in almost a week, according to data compiled by Bloomberg.

Royal Bank of Scotland Group Plc also advanced after it agreed to pay $1.1 billion to settle National Credit Union Administration claims that it sold faulty mortgage-backed securities to U.S. credit unions.
Anglo American Plc and Rio Tinto Plc led commodity producers higher, with gains of 2 percent or more, as base metal prices advanced.

In the US, S&P 500 Index futures slipped 0.1%, after U.S. equities climbed on Tuesday. Investors will look to data Wednesday on durable goods orders in August for indications of the health of the world’s biggest economy, with economists forecasting a decline from July. Nike Inc. dropped 2 percent in European trading after the maker of sneakers and athletic apparel posted futures orders that missed analysts’ estimates.

Saudi Arabian stocks fell, heading for the biggest two-day slump since January. The Tadawul All Share Index has lost 6 percent in the period after the kingdom canceled bonus payments for state workers and cut ministers’ salaries. The moves were part of new measures by the world’s largest oil exporter to contain the budget deficit following a slump in crude prices.

Finally, a quick look at the world of central bankers losing confidence, Japanese 10Y bonds climbed, pushing their yield to a one-month low of minus 0.09%. That compares with the Bank of Japan’s target of about zero for the rate and Mitsubishi UFJ Morgan Stanley Securities Co. said yields are approaching levels that could convince the authority to slow its debt purchases, and effectively taper its QE. The rate on 10Y Bunds was little changed at -0.14%. Portuguese bonds rallied, sending the 10-year yield eight basis points lower to 3.33 percent. 19Y US paper was yielding 1.577%.

Market Snapshot

  • S&P 500 futures down 0.1% to 2150
  • Stoxx 600 up 0.5% to 342
  • FTSE 100 up 0.5% to 6844
  • DAX up 0.8% to 10442
  • German 10Yr yield down less than 1bp to -0.15%
  • Italian 10Yr yield up less than 1bp to 1.22%
  • Spanish 10Yr yield up 2bps to 0.92%
  • S&P GSCI Index up 0.2% to 351.2
  • MSCI Asia Pacific down 0.7% to 141
  • Nikkei 225 down 1.3% to 16465
  • Hang Seng up 0.2% to 23620
  • Shanghai Composite down 0.3% to 2988
  • S&P/ASX 200 up 0.1% to 5412
  • US 10-yr yield up 1bp to 1.57%
  • Dollar Index up 0.09% to 95.52
  • WTI Crude futures up 0.4% to $44.84
  • Brent Futures up 0.6% to $46.24
  • Gold spot down 0.2% to $1,325
  • Silver spot down less than 0.1% to $19.13

Global Headline News

  • Wal-Mart in Talks to Invest Up to $1b in Flipkart: WMT would take a minority stake in Flipkart under proposed agreement, according to person familiar.
  • Deutsche Bank to Take $895m Charge on Abbey Life Unit Sale: Co. to book pretax loss of ~EU800m from sale of its U.K. insurance unit; Deutsche Bank Rises; CEO Sells Assets, Rules Out Capital Hike
  • Nike Orders Miss Estimates, Renewing Concerns About Slowdown: Orders rose just 1% in North America as of Aug. 31.
  • U.S. Faults Foot-Dragging Banks Amid Deutsche Bank Talks: DoJ said that several lenders caught up in long-running mortgage securities investigations had dragged out govt’s work.
  • Wells Fargo’s CEO Forfeits $41m in Fight to Keep His Job: John Stumpf to forgo >$41m in stock, salary as bank’s board investigates how employees opened legions of bogus accounts for customers.
  • Cisco to Add Jobs in Mexico as Part of $4b Spending Plan: Investment will lead to creation of 270 new Cisco jobs, 77 outside positions.
  • Hedge Funds Face Most Difficult Era Robertson’s Ever Seen: “That type of business hasn’t worked lately, and it’s a tough business,” Julian Robertson said Tuesday night in Bloomberg interview.
  • Goldman Says Can Beat Fintech Ventures With Online Loans: Using deposits to fund loans will give bank more leeway when setting terms and fees, Stephen Scherr, head of banking operations, said at conference.
  • Caesars Deal Boosts Appaloosa After Apollo, TPG Give Ground: David Tepper’s fund more than doubles recovery in casino case.
  • Freeport’s $2 Billion Anadarko Sale Said to Face Lender Snag: Some creditors want more money, greater protection for allowing sale of oil & gas assets to Anadarko.
  • Pimco Says It Will Probably Be Onshore in China in Year or 2: “Most recently we’ve seen regulations change,” head of Asia Pacific Eric Mogelof said at Bloomberg Markets Most Influential Summit in Hong Kong.
  • Tyson Recalls 60 Tons of Chicken Nuggets on Contamination Fears: Recall prompted by “small number of consumers” telling co. they found pieces of hard, white plastic in nuggets.
  • Elliott, Aurelius vs Citi in High-Stakes Bankruptcy Feud: Battle has funds against Citigroup-led pool of lenders.
  • Yearlong Rush to Muni Funds Leaves Investors Wary of Exodus: This week may mark fifty-second straight with inflows to state, local-govt bond funds.
  • COTY Replaces DO in S&P 500; TTS Replaces EPIQ in SmallCap 600

* * *

Looking at regional markets, we start in Asia where stocks failed to take the impetus from the positive lead from the strong US close, with the region mostly lower amid weakness across commodities. Nikkei 225 (-1.5%) was the laggard with commodity-related sectors suffering after oil prices fell nearly 3% amid doubts regarding an output freeze deal, while gold prices also dropped over USD 10/oz in the prior session after US Consumer Confidence rose to its highest since August 2007. This also weighed on commodity names in the ASX 200 (+0.1%), although losses were stemmed by strength in utilities, led by AGL Energy. Shanghai Composite (-0.3%) and Hang Seng (+0.2%) conformed to the lacklustre tone after the WTO forecasted world trade to grow at its slowest pace since the GFC, with Hong Kong markets the underperformer on amid a lacklustre debut from Postal Savings Bank of China. 10yr JGBs were higher amid risk averse sentiment in Japan and the BoJ also in the market for over JPY 1.1tIn of government debt, while Japanese yields remained pressured in which the 2yr yield declined to its lowest in around 2 months.

Top Asian News

  • South Korean Court Is Considering Sale of Hanjin Shipping: Court prefers to have companies in industry take over Hanjin
  • Postal Bank Makes Tepid Debut Amid Report Soros Fund Invested: Chinese lender’s IPO was biggest since Alibaba in 2014
  • Abe Clashes With New Opposition Leader Over BOJ Inflation Policy: Renho calls monetary policy a ‘failure,’ criticizes GPIF
  • Duterte Woos Army as Opponents Warn of Discontent in Ranks: Peso sinks, global funds sell, as rhetoric spooks investors
  • BoAML Sees China Crisis, BlackRock Only Bumps in Road: Views differ on how much room Chinese government has to move

In Europe, after a turbulent start to the week, the pressure on local equities subsided today to see Euro Stoxx 50 trading higher by +1.1%, with Deutsche Bank (+2.3%) among the best performers today to pare some of the recent heavy losses after CEO Cryan sought to quell concerns overnight in an interview with Bild, whereby he played down the possibility of capital raising, while stating there are fewer risks than before and reassuring that the bank has enough liquidity. This was then followed up by reports in German press suggesting that the German state were planning a contingency plan for the Co. (albeit in extreme circumstances) which pressured the Co.’s shares by highlighting the severity of the situation. However, Co. shares then pared this move as the plan was said to involve the German state potentially taking a stake in the Co. — contrary to comments from German Chancellor Merkel over the weekend. On a sector breakdown, alongside the upside in financials, energy and material names are also among the best performers, again retracing some of the recent downside. The most notable moves in fixed income have come from the periphery, with Greek bonds rallying after positive comments from Greek PM Tsipras, suggesting that the second Greek bailout review is to conclude on time and is anticipating positive news on debt by the end of the year. In terms of supply, this morning saw the market absorb the latest Schatz auction from the Buba, although little in the way of price action was seen in the German 2yr.

Top European News

  • German Govt Working on Deutsche Bank Contingency Plan: Die Zeit: Possible scenarios include capital injection to cover litigation costs, also option of German govt taking a stake; Deutsche Bank Should Slash Bonuses of Staff, Autonomous Says
  • Bank of England’s Shafik Sees Further Easing Likely for U.K.: “It seems likely to me that further monetary stimulus will be required at some point, ” says BOE dep. governor Minouche Shafik.
  • RBS Will Pay $1.1b in Settlement Over Mortgage Securities: Bank to settle National Credit Union Administration claims it sold faulty MBS to U.S. credit unions.
  • SABMiller Name to Disappear as Shareholders Vote: AB InBev to keep its name after shareholders approved acquisition at a meeting in Brussels.
  • Pound Set for Longest Run of Losses Since 1984 on Brexit Woes: pound headed for its fifth quarterly decline versus the dollar, the longest run in 32 years

In FX, the Bloomberg Dollar Spot Index climbed 0.2 percent, gaining for the first time this week. Fed Chair Janet Yellen will address lawmakers on Wednesday and the lineup of Fed officials due to make speeches includes Loretta Mester and Esther George, both of whom voted in favor of an interest-rate increase at last week’s policy review. The central bank held borrowing costs steady on Sept. 21 and futures prices reflect roughly 50-50 odds of a hike by December, down from 61 percent a week ago. “The market is waiting on fresh direction, potentially from some Fed speakers tonight,” said David Forrester, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment-banking unit in Hong Kong. “The dollar is likely to be subject to some temporary downside risk ahead of the U.S. presidential election and will be especially dependent on the opinion polls.” New Zealand’s dollar weakened 0.7 percent versus the greenback, the biggest loss among 16 major currencies. The ringgit approached a three-month low as Tuesday’s drop in oil prices worsened prospects for Malaysia, Asia’s only major net exporter of crude. The yen declined 0.3 percent against the dollar.

In commodities, crude oil was up 0.4 percent at $44.86 a barrel in New York, having posted moves of more than 2 percent for each of the last five days. Prices steadied after industry data indicated U.S. supplies fell by 752,000 barrels last week. An output freeze was first proposed in February and the International Energy Agency sees a global oil glut persisting until late 2017. While no deal is expected today, the door remains open to the possibility of progress when the Organization of Petroleum Exporting Countries next meets in November. “OPEC members are peddling their self interests, and while that’s the case, there can’t be a cooperative effort,” said Michael McCarthy, chief market strategist in Sydney at CMC Markets. “There is little possibility of that coming together. Oil is trapped between $40 and $50 a barrel, and at this stage, there doesn’t appear to be anything on the horizon to break prices out of that range.”

On today’s busy calendar we have lots of important data in the flash durable and capitals goods orders data for August. The market consensus is for a -1.5% mom decline in headline durable goods orders and a -0.1% mom decline in core capex orders. While a modest decline in aircraft orders should weigh on the headline durable orders reading the ex-transportation reading should be little changed according to economists which would be broadly consistent with last month’s performance of ISM manufacturing orders. Away from the data there’s a bunch of Fedspeak to highlight. Fed Chair Yellen is scheduled to testify before the House Panel on bank supervision and regulation. Typically, this is not the venue where the Fed Chair discusses the economy, so the testimony should be a non event for the financial markets. Meanwhile Bullard is due to make comments at 10.15 am followed by Evans at 1.30pm and Mester at 4.35pm. The IMF’s Lagarde also speaks today while the ECB’s Draghi will firstly address a research conference in London this morning at 10am BST followed by a closed session briefing to German lawmakers at 2.30pm BST. He’s also expected to comment to reporters after this briefing. The major Oil producers’ meeting in Algeria is also due to wrap up today.

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

  • After a turbulent start to the week, the pressure on European equities has subsided today to see Euro Stoxx 50 trading higher by +1.1%
  • BoE member Shafik reiterated the possibility of further stimulus measures, though if the data warranted, but the headline saw Cable hit back through 1.3000
  • Looking ahead, highlights include DoE Crude Oil Inventories, US Durable Goods Orders and a slew of speakers which include ECB’s Draghi & Fed’s Yellen

US Event Calendar

  • 7am: MBA Mortgage Applications, Sept. 23 (prior -7.3%)
  • 8:30am: Durable Goods Orders, Aug. P, est. -1.5% (prior 4.4%)
  • 9:30am: ECB’s Draghi briefs closed session of German parliament
  • 10am: Fed’s Yellen testifies before House Financial Services Committee
  • 10:15am: Fed’s Bullard speaks in St. Louis
  • 10:30am: DOE Energy Inventories
  • 1:30pm: Fed’s Evans speaks in St. Louis
  • 4:35pm: Fed’s Mester speaks in Cleveland
  • 8pm: Fed’s George speaks in Kansas City

DB’s Jim Reid concludes the overnight wrap

Needless to say the focus over the last 24 hours has been on the outcome of the most watched US Presidential Debate in history. As we highlighted yesterday that early CNN poll, which was out just a short time following the exchange, had Clinton coming out best at 62% compared to just 27% for Trump. That was actually the third largest margin of victory for a CNN post-debate poll since 1984. The Mexican Peso – which has emerged as the sentiment proxy for the debate – surged over 2% and had its best day since February but as the dust settled, it was interesting to digest some of the other polls and snippets which eventually emerged.

The first was the reminder of the Presidential Debates during the 2012 election in which the CNN poll recorded a decent margin of victory for Romney over Obama at 67% to 25% in the first debate, only to then be followed by second and third debate victories for Obama, albeit narrowly at 46% to 39% and 48% to 40% (both being CNN polls too). It’s worth noting that the horse-race polls moved in favour of Romney following that first debate. Meanwhile, a raft of other polls yesterday gave for some food for thought too. The following are a list of polls that we found published following the debate, all of which asked the simple question of who won: Time.com (56% vs. 44% in favour of Trump), CNBC (68% vs. 32% in favour of Trump), Fortune (53% vs. 47% in favour of Trump), Public Policy Polling (51% vs. 40% in favour of Clinton), Slate (55% vs. 45% in favour of Trump) and CBS NY (59% vs. 41% in favour of Trump). So including the CNN poll that was 5 out of 7 favouring Trump.

Clearly the reliability of these polls can be brought into question and it may take a few days to see more reliable pollsters emerge. That said, given the subsequent consideration of the additional polls yesterday and also previous trends from the 2012 debate it’ll be interesting to see whether the early consensus view that Clinton emerged as the victor translates into the next batch of poll numbers and perhaps the betting market. As we noted yesterday Trump has been written off many times before and has repeatedly confounded his critics with strong on the ground support. This should all mean that there should be a decent amount of intrigue at the next two battles on October 9th and 14th.

In terms of markets yesterday, despite a very brief dip lower at the open equity markets in the US consolidated gains from the early evening into the close. The S&P 500 eventually closed up +0.64% as tech stocks in particular gained (the Nasdaq was up +0.92%), along with a rebound for financials. The Treasury curve bull flattened again (US 5y30y spread finishing 3.5bps tighter) while credit markets were tighter (CDX IG -1.7bps). A surge in the latest consumer confidence reading certainly helped sentiment (we’ll touch on this shortly) while yesterday’s gains also came despite a backdrop of weaker energy names following a -2.74% tumble for Oil. That was after Iran downplayed hopes for an agreement at the OPEC meeting while the latest twist suggests now that a deal might be more likely when producers meet in November. Oil prices have now increased or decreased at least 2.16% for each of the last five days.

Quickly refreshing our screens this morning it’s been a broadly risk-off start to the day in Asia. There have been heavy losses for bourses in Japan in particular where the Nikkei and Topix have slumped -1.54% and -1.63% respectively with financials slumping over -3%. Elsewhere the Hang Seng (-0.69%), Shanghai Comp (-0.28%) and Kospi (-0.37%) are also down, while the ASX is flat. US equity index futures are also in the red, albeit modestly, while sovereign bond markets are generally stronger. Oil markets are little changed following those declines yesterday.

Back to yesterday. With regards to the economic data, as highlighted earlier the standout was the big jump in US consumer confidence this month to 104.1 from 101.8 in August. The market consensus was actually for a decline to 99.0. The reading is now the highest since August 2007 while the present conditions gauge also jumped to the highest in 9 years. Encouragingly, jobs plentiful also rose to 27.9 and to a post crisis high. Elsewhere, the flash services PMI nudged up nearly 1pt to 51.9 which, if it stays there in the final revision, will put it at the highest level since April. There was less good news in the Richmond Fed manufacturing survey which did improve 3pts this month to -8 but printed below the consensus -2 forecast. Away from the data, Fed-Vice Chair Fischer commented however refrained from speaking directly about the outlook. Instead he chose to focus on the recent decline in unemployment below 5% which has resulted in the economy ‘beginning to see the fruits of a higher pressure labour market’

In Europe our economists noted that the ECB’s August monetary report was on balance disappointing. While money supply (M3) growth did accelerate from 4.9% to 5.1% this was due to ongoing moves into most liquid deposits. The credit side saw negative loan flows to euro area corporates in August and our colleague’s credit impulse measure fell to 0.6% of GDP, the lower end of its range over the past two years. They do however note that we have to be cautious when interpreting August data given the potential seasonality but that said the data is still consistent with their view of a slow growth trend and below consensus 2017 Euro area GDP (forecasting +1.1% yoy). Markets in Europe yesterday were a bit more muted with the Stoxx 600 closing +0.06% and DAX dropping -0.31% as financials suffered further losses.
In the UK Sterling (+0.37%) had a better day after closing back above the $1.30 level. The EU’s economic commissioner, Pierre Moscovici, was the latest to make comments on Brexit and said that UK PM Theresa May needs to trigger the start of negotiations for the EU exit process by the end of March and that any delay beyond that might be too long.

Looking at the day ahead, this morning in Europe the only data due out are the latest consumer confidence indicators for Germany (in October), France and Italy (both September). In the US we’ve got important data in the flash durable and capitals goods orders data for August. The market consensus is for a -1.5% mom decline in headline durable goods orders and a -0.1% mom decline in core capex orders. Our US economists expect durable goods to decline a little less than the market (-1.0% mom forecast) but also expect core capex orders to decline -0.1% mom. While a modest decline in aircraft orders should weigh on the headline durable orders reading the ex-transportation reading should be little changed according to our economists which would be broadly consistent with last month’s performance of ISM manufacturing orders. Away from the data there’s a bunch of Fedspeak to highlight. Fed Chair Yellen is scheduled to testify before the House Panel at 3pm BST on bank supervision and regulation. Typically, this is not the venue where the Fed Chair discusses the economy, so the testimony should be a non event for the financial markets. Meanwhile Bullard is due to make comments at 3.15pm BST followed by Evans at 6.30pm BST and Mester at 9.35pm BST. The IMF’s Lagarde also speaks today while the ECB’s Draghi will firstly address a research conference in London this morning at 10am BST followed by a closed session briefing to German lawmakers at 2.30pm BST. He’s also expected to comment to reporters after this briefing. The major Oil producers’ meeting in Algeria is also due to wrap up today. So a busy day all round!

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