Global stocks continued their selloff this morning, driven by surging speculation about the liquidity, solvency and viability of Deutsche Bank, which plunged 9% after opening in German trading today, dropping to a new all time single-digit low of €9.90, its credit default swaps soared to new all time highs, and its Additional Tier 1 notes fell to record lows (the €1.75BN of 6% bonds dropped five cents on the euro to 70 cents), although losses were cut in half after yet another memo by CEO John Cryan sought to reassure the bank’s employees and investors…
Morning Note: 1. Some DB clients reduce exposure. 2. Cryan says everything is ok. 3. Investors remain clueless pic.twitter.com/geKbPSyTRO
— Jonathan Ferro (@FerroTV) September 30, 2016
… although we doubt this latest pep talk will lead to a sustained rebound, since there has been no talk yet of what the undercapitalized (by as much as €8 billion according to Citigroup) Deutsche Bank) need most of all, namely a capital raise. “Deutsche certainly weighs on sentiment, and the declines are concerning,” said James Woods, a strategist at Rivkin Securities in Sydney. “Being named the number one bank for global systemic risk, it’s entwined with everyone.”
The rebound in DB also helped US equity futures rise from session lows, when they slid as much as half a percent, before rebounding to -0.2% at last check. More troubling for the global financial system is that the DB contargion has now well and truly spread, as banking shares across Europe led losses in global stocks. Meanwhile, the dollar strengthened with government bonds while gold rose for the first time in four days as investors poured into haven assets.
As Bloomberg summarizes the last day of Q3, “what’s set to be the best quarter of the year for global stocks is ending on a sour note as concern mounts over Deutsche Bank’s ability to withstand pending legal penalties and hedge funds reduce their financial exposure. While its shares have more than halved in value this year and cross-currency swaps show the biggest weekly increase in two years, systemic concerns have a way to go to reach levels sparked by the collapse of Lehman Brothers Holdings Inc. in 2008 after regulators and central banks took steps to shore up the financial system.”
The tension in the markets is well-known and was summarized by Valentin Marinov, the head of G10 currency strategy at Credit Agricole, who told Bloomberg that “Markets are spooked by the stories about clients cutting exposure to the troubled German lender. The risk is that, with the European Central Bank running out of options to ease, they may struggle to contain another market turmoil.”
Elsewhere across global markets, the MSCI All-Country World Index slid 0.6 % as of 6 a.m. in New York, paring this quarter’s advance to 4%. The Stoxx Europe 600 Index slid 0.9 percent. Commerzbank AG lost 5.4%, as HSBC Holdings Plc downgraded the lender to hold, saying its new strategy announced Thursday isn’t convincing. ING Groep NV dropped 2.5% after a report that the largest Dutch lender will announce thousands of job cuts next week.
Telefonica SA lost 4.6 percent after canceling an initial public offering of its infrastructure unit Telxius Telecom SA, amid weak investor demand. S&P 500 Index futures were little changed. Investors will look Friday to data on consumer spending, sentiment and Chicago-area manufacturing for indications of the health of the world’s biggest economy. Hong Kong shares led losses in Asia with the city’s stock-exchange link to Shanghai having already closed before a week-long holiday in China. Inflows via the channel helped drive a 12 percent gain in the Hang Seng Index this quarter, the region’s best performance.
Looking at the bond market, Europe’s highest rated bonds advanced as investors opted for their relative safety. German bunds were set for their third week of gains. The yield on the 10-year bund fell three basis points, or 0.03 percentage point, to minus 0.15 percent, having earlier reached minus 0.16 percent which matched the lowest since July. The yield has dropped 15 basis since the week ended Sept. 9. Gains in euro-area bonds have driven the total number of securities in the region yielding less than the European Central Bank’s deposit rate of minus 0.4 percent to more than $2 trillion, which is more than a third of the total number of bonds comprising the Bloomberg Eurozone Sovereign Bond Index.
Market Snpashot:
- S&P 500 futures down 0.2% to 2145
- Stoxx 600 down 0.9% to 339
- FTSE 100 down 1% to 6851
- DAX down 1.2% to 10286
- German 10Yr yield down 3bps to -0.15%
- Italian 10Yr yield up less than 1bp to 1.21%
- Spanish 10Yr yield down less than 1bp to 0.91%
- S&P GSCI Index down 0.7% to 360.9
- MSCI Asia Pacific down 1% to 140
- Nikkei 225 down 1.5% to 16450
- Hang Seng down 1.9% to 23297
- Shanghai Composite up 0.2% to 3005
- S&P/ASX 200 down 0.6% to 5436
- US 10-yr yield down 2bps to 1.54%
- Dollar Index up 0.19% to 95.72
- WTI Crude futures down 1.1% to $47.31
- Brent Futures down 1.2% to $48.66
- Gold spot up 0.5% to $1,326
- Silver spot up 0.8% to $19.27
Top Global Headlines
- Deutsche Bank Slumps as Some Hedge Fund Clients Reduce Exposure: Millennium, Capula among counterparties shifting positions. Bank’s CEO Cryan has ruled out state aid, capital increase
- Volatility Hedge Fund Sees Bull Market in Fear as VIX Bets Jump: Trading of VIX futures is on course for a record year. Investors are paying highest prices since 2012 for protection
- Salesforce to Urge Regulators to Examine Microsoft-LinkedIn: Deal threatens innovation and competition, Salesforce says. Extended review of acquisition could delay approval for months
- Qualcomm Stock Surges on Report of Interest in Acquiring NXP: NXP would allow Qualcomm to diversify away from smartphones. Target is largest maker of semiconductors used in cars
* * *
Looking at regional markets, we start in Asia where stocks traded mostly lower following the losses on Wall St. where sentiment was dragged down by further Deutsche Bank woes. This dampened the financial sectors in ASX 200 (-0.7%) and Nikkei 225 (-1.5%) with the latter also suffering after slew of mostly discouraging data in which Unemployment rose, CPI remained subdued and Household Spending fell by the most in 5 months. Chinese markets were mixed with Hang Seng (-1.9%) conforming to the widespread downbeat tone, while Shanghai Comp. (+0.2%) was resilient as participants digested a mild improvement in activity with China Caixin PMI figures printing in line with estimates at 50.1 (Prey. 50.0). 10yr JGBs traded lower despite the risk averse sentiment in Japan with pressure seen after a weaker bond buying operation by the BoJ.
Top Asian News
- PBOC Pulls Most Funds Since July Amid Leverage Curb Speculation: Adds to pressure from quarter-end, holiday demand for money
- China’s Big Political Gambit Hinges on a Remote Arabian Sea Port: Mountains, disputed territory and armed rebels lie in the way of China’s route
- Alarm Bells Sound in New York as Duterte’s Audit Roils Mines: OceanaGold CEO says “investors are very worried” about country
- India Seeks to Curb Tensions After Raid Over Pakistan Border: No plan to escalate situation by scrapping Pakistan treaties
- Data Deluge Shows Japan’s Economy Sputters on as Prices Fall: Industrial production offered bright spot for Japan in August
The sell-off in Deutsche Bank (-7%) has dragged the share price to 30 year lows leading financials and European bourses (Dax -1.5%) into the red, the most recent sell-off came after hedge funds had reportedly reduced their exposure to the lender. This has subsequently led the Co.’s CEO to state that market forces are attempting to undermine the bank in a letter to employees. The woes for Deutsche haven’t been isolated to Deutsche with the likes of Commerzbank, Barclays, Credit Suisse and Santander all feeling the squeeze, to name a few. Elsewhere, energy names are softer amid the pullback seen in WTI and Brent but losses are modest in comparison to those seen in the banking sector. In fixed income, the main theme on the menu has been risk-aversion which has subsequently supported prices with little in the way of supply for today’s session.
Top European News
- Fate of Italy’s Economy at Risk If Renzi’s Key Referendum Fails: Growth harmed without budget measures, prime minister signals. Finnish central bank says Rome weakness worrying like Brexit
- H&M Warns Weak September Sales May Erode Fourth-Quarter Profit: Revenue growth slows to 1%, slowest pace in 13 months. Retailer plans to introduce as many as 2 brands next year
- Apple, Irish Said to Claim EU Kept Them in Dark Over Tax: Duo to argue in court that EU failed to explain probe U- turn. EU says it communicated fully and didn’t change tack in case
- ING Shares Fall After Report Thousands of Jobs to Be Cut: ING Groep NV, the largest Dutch lender, fell the most in two months in Amsterdam trading after a report that the company will announce thousands of job cuts next week
In FX, The Bloomberg Dollar Spot Index rose 0.2 percent. The pound advanced against most of its major peers and was on course for its first weekly gain versus the euro since Sept. 2. The yen appreciated 0.3 percent to 113.03 to the euro extending a three-week advance of 2.3 percent since Sept. 2. India’s rupee was the best-performing emerging-market currency as the nation and Pakistan moved to contain military tensions after Prime Minister Narendra Modi’s administration announced it killed terrorists just across the border. The cost for European banks to fund in dollars, a gauge of risk in the region’s financial system, rose to the most expensive level in more than four years amid Deutsche Bank’s woes. The three-month cross-currency basis swap, the rate for banks to convert euro payments into dollars, fell to 57 basis points, or 0.57 percentage point, below the euro interbank-offered rate, according to data from ICAP Plc. That’s the most negative reading on a closing basis since July 2012. The measure reached as much as 154.5 basis points below Euribor in November 2011. While so-called FRA/OIS spreads, a measure of bank risk, were set for their biggest weekly jump since June, the front contract was at a record low as recently as two weeks ago.
In commodities, gold rose 0.4 percent to $1,326.30 an ounce. Following the best first half in 40 years, interest in the metal has waned as prices barely budged in the second quarter. The 60-day volatility is near the lowest in more than a year and the amount of metal added to exchange-traded funds has slowed. Holdings backed by gold have climbed 4 percent this quarter after jumping 21 percent in the first three months of the year and 11 percent in the second quarter. Crude oil fell 1.3 percent to $47.22 a barrel in New York, after gaining more than 7 percent over the last two days. While Wednesday’s agreement among Organization of Petroleum Exporting Countries imposed an overall production cap on the group of 14 oil producers, it didn’t assign individual limits — that was left to a committee that will report back at OPEC’s next meeting in November. “It’s good that OPEC is going to limit production but sticking to the deal is the big headwind facing the organization,” said David Lennox, a resources analyst at Fat Prophets in Sydney. “We’re yet to get the exact details on which countries will contribute the cut, but the Saudis could handle that on their own without too much hassle.”
On today’s calendar, the highlight will likely be the personal income and spending reports for August (market consensus is for +0.2% mom and +0.1% mom respectively) along with last month’s August PCE core and deflator prints. We’ll also get the latest Chicago PMI, followed lastly by the final September revision for the University of Michigan consumer sentiment reading. Away from the data, the Fed’s Kaplan is due to speak this evening at 6pm BST.
* * *
Bulletin Headline Summary from RanSquawk and Bloomberg
- Deutsche Bank woes continue to grip the market, sending European equites lower once again
- Risk off has been then running theme in FX this morning, with the likes of AUD and CAD under pressure while JPY and CHF buying has followed suit
- Looking ahead, Highlights include Chicago PMI, University of Michigan Sentiment & a Speech from Fed’s Kaplan
US Event Calendar
- 8:30am: Personal Income, Aug., est. 0.2% (prior 0.4%)
- 9:45am: Chicago Purchasing Manager, Sept., est. 52 (prior 51.5)
- 10am: University of Michigan Sentiment, Sept. F, est. 90 (prior 89.8)
- 1pm: Baker Hughes rig count
* * *
DB’s Jim Reid completes the overnight wrap
As the dust settled yesterday from the OPEC news it seemed to become fairly clear quite quickly that there is still plenty of doubt amongst investors about the actual willingness of OPEC to follow through on their word and agree on the finer details. While Oil (+1.66%) edged a bit higher yesterday, and at one stage saw WTI break above $48/bbl for the first time in two weeks, markets elsewhere have seemingly moved on to other things as negative headlines around the European banking sector reverberated across the wires and so sent financials lower, and the healthcare sector buckled under pressure on lingering regulatory concerns. The end result saw the S&P 500 (-0.93%) more than wipe out the previous day gain, while the Stoxx 600 (+0.04%) wiped out an early rally of more than 1%, despite the energy sector surging nearly 5%. The bid continued for Treasuries with the 10y yield down another basis point to 1.561% while the Greenback and Gold also bounced off the early intraday lows.
Before we go any further, it’s been a busy morning in Asia and especially in Japan where a flurry of data has been released alongside the BoJ summary of opinions from the meeting last week. Starting with the data, there is little sign of deflationary pressures abating for the BoJ with headline CPI nudging further lower last month to -0.5% yoy from -0.4% in July. That’s the lowest reading since April 2013. The core remained at -0.5% yoy (vs. -0.4% expected) and the core-core fell one-tenth to +0.2% yoy as expected. On a seasonally adjusted month on month basis, headline CPI was -0.1% while the two core readings were flat. Overall household spending (-4.6% yoy vs. -2.1% expected) also disappointed. Meanwhile, the jobless rate crept up to +3.1% in August from +3.0% although it continues to hover around historically low levels, while the one bright spot of this morning’s data dump was industrial production (+1.5% mom vs. +0.5% expected).
In terms of the BoJ minutes, the summary of opinions showed that the board will continue to examine an appropriate shape of the yield curve at every monetary policy meeting. The text also revealed that the BoJ felt that it was ‘imperative’ to ensure the sustainability of monetary easing and that the ‘inflation-overshooting commitment’ and ‘yield curve control’ are a paradigm shift in monetary easing policy.
There should continue to be more focus on Japan this morning when, at about 9am BST, the BoJ is set to announce its outline of outright purchases of JGB’s for October. This will likely attract more interest than normal given that it is the first monthly JGB purchase plan since the introduction of QQE with yield curve control last week. Our strategists in Japan believe that it will be difficult for the Bank to keep its annual JGB balance increase at ¥80tn in 2017 and so they expect to see the start of gradual passive tapering in the near future. That said, they also expect the BoJ to maintain its October JGB purchase plan, adopting a wait and see attitude for next month. Any reduction in purchases though would likely be extensively seen as a start of tapering, which our strategists say risk yen appreciation and a decline in stocks. The October JGB purchasing plan is an important event to measure the BoJ’s stance for yield curve targeting, so it’s worth keeping an eye on the details.
In terms of what markets have done in Asia this morning, bourses in Japan are generally leading losses following that data with the Nikkei and Topix -1.55% and -1.51% respectively with financials in particular under pressure. Those losses have actually come despite a -0.40% weakening for the Yen. Meanwhile the Hang Seng (-1.19%), Kospi (-0.94%) and ASX (-0.67%) have also dipped lower. China is outperforming with the Shanghai Comp (+0.13%) a smidgen higher. That has come after the private Caixin manufacturing PMI for September edged up to 50.1 from 50.0. Elsewhere, Oil has given back about half a percent this morning.
Back to yesterday. In terms of the data, the main focus in the US was on the third revision to Q2 GDP. Growth was revised up from +1.1% to +1.4% qoq primarily as a result of slightly higher non-residential fixed investment and also less inventory destocking than what was previously reported. Meanwhile initial jobless claims (+3k to 254k) continued to underscore decent strength in the labour market with the four-week average ticking down now to 256k which is the joint lowest since November 1973. Elsewhere the advance goods trade deficit for August narrowed very modestly to $58.4bn while pending home sales came in a fair bit softer than expected last month (-2.4% mom vs. 0.0% expected).
There was a bit of Fedspeak yesterday too but once again nothing that appeared to be much of a change of view or market moving. The Atlanta Fed’s Lockhart (centrist) said that ‘a change in policy could occur before too long’ but that also ‘I did support the consensus view that, before taking the next move, it makes sense to see a little more evidence of progress toward our statutory policy objectives’. Meanwhile Philadelphia Fed President Harker said that ‘I tend to be in the camp of normalizing sooner, rather than later’ which is consistent with his more hawkish leaning.
Over in Europe yesterday, Germany reported a +0.1% mom increase in consumer prices this month after expectations were for no change, although the harmonized measure did come in at 0.0% mom. Euro area confidence indicators generally edged up this month with the economic confidence reading in particular printing 1.4pts higher at 104.9 (vs. 103.5 expected). Finally in the UK mortgage approvals (60.1k vs. 60.2k expected) were more or less in line but did decline from 60.9k in July and to the lowest level in nearly two years. Net consumer credit (£1.6bn vs. £1.4bn expected) remained fairly strong last month though.
Staying with Europe, yesterday DB’s Marco Stringa published a note on the key recent developments in Italy. He highlights that ahead of the Senate reform on December 4th, opinion polls remain too close to call and the proportion of undecided voters is also very large. He notes that some have interpreted Renzi’s recent statements as a sign that even if the Senate reform is rejected he will not resign. Hence, a “No” vote would have less significant consequences than previously thought. Marco disagrees. He says that if the Senate reform is rejected, his central case scenario is that Renzi will resign and then he will either lead or just support a new government with limited scope – writing a new electoral law – and limited duration. The low likelihood but potentially high impact scenario in the case of a rejection of the Senate reform would be an immediate early election in Q1 2017 which would favour the anti-establishment 5SM. On the other hand, an approval of the Senate reform would probably be, at least in the short term, the most market friendly outcome, but it would be no panacea.
Looking at the day ahead, there’s a fair bit of data to get through in the European session this morning. In Germany the August retail sales data will be released a short time after this hits your emails, followed closely by UK house price data for September. CPI reports for France and also the Euro area will be due this morning along with the final Q2 GDP revisions in the UK. This afternoon in the US the highlight will likely be the personal income and spending reports for August (market consensus is for +0.2% mom and +0.1% mom respectively) along with last month’s August PCE core and deflator prints. We’ll also get the latest regional manufacturing survey in the form of the Chicago PMI, followed lastly by the final September revision for the University of Michigan consumer sentiment reading. Away from the data, the Fed’s Kaplan is due to speak this evening at 6pm BST.
Before we wrap up, early tomorrow morning the official manufacturing and non-manufacturing PMI’s will be released in China. Also of potential interest is Sunday’s scheduled referendum in Hungary where Hungarians will vote on the resettlement of refugees. The referendum is backed by Prime Minister Orban and will be the latest test of populist power. A 50% turnout is needed for the final outcome to be legally binding.
The post Global Stocks Slide As Deutsche Bank Fears Rise: Flight To Safety Boosts Bonds, Bullion appeared first on crude-oil.top.