LONDON: A fresh slump in Deutsche Bank’s share price sent European markets into a tailspin on Friday and left world stocks sliding toward their worst week in three months.
Hit by a string of fines for wrongdoing and a sharp fall in its revenues, Germany’s biggest lender saw its shares drop as much as 9 per cent and to below 10 euros for the first time before clawing back roughly half that lost ground.
The sell-off followed reports that a number of hedge funds that clear derivatives trades with Deutsche had withdrawn some of their cash and adjusted positions, a sign that counterparties were becoming wary of doing business with it.
Deutsche Bank’s CEO sent an email to staff seeking to reassure them but the turbulence spilt across all markets.
The euro fell to a two-month low of 1.081 against the safe-haven Swiss franc and jittery buyers flocked to German government bonds, driving down their yields.
Futures prices pointed to a second day of falls for Wall Street too and although they were expected to be more modest than in Europe, the S&P 500 and Dow looked set for their first weekly loss in three.
“It is fear itself,” National Australia Bank’s London-based Global Head of Forex Nick Parsons said of the Deutsche Bank angst. “The problem is we have had previous experiences of bank failures and they are still very fresh in the memory and it is making for a very nervous backdrop.” Tight liquidity at the end of the quarter — and year-end for some funds — may have exacerbated some market moves.
In a sea of red, London’s FTSE 100 was down 1 per cent, while Germany’s DAX and France’s CAC 40 fell 1.1 and 1.5 per cent. Banks across Europe were down almost 4 per cent and nearly 6.5 per cent on the week.
The euro was almost universally lower while worries about a post-EU deal for Britain left the pound heading for its fifth consecutive quarter of losses against the dollar. That is its worst run since 1984.
A Reuters poll on Friday showed European investors have cut their exposure to British stocks to a two-year low and to the lowest since last May for Eurozone holdings due to the continued Brexit uncertainty.
“Brexit represents an important shock to the outlook, with further implications expected in the months to come,” said Matteo Germano, global head of multi asset investments at Pioneer Investments.
There were some positives. The Eurozone saw deflation worries ease while only three stock markets look set for quarterly losses — Poland, Mongolia and the Philippines.
Latin America, and Brazil in particular, have had another storming quarter. Its stocks are up another 15 per cent to take their gains for the year to a whopping 62 per cent.
Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1 per cent. But it is poised for a 9 per cent jump in the third quarter.
With the chance of a Federal Reserve interest rate hike in December still seen at around 50-50, a raft of US data due next week was also contributing to market jitters.
“People are very nervous going in to next week, with risk factors including the US election and economy, with payrolls coming out next week,” said Stefan Worrall, director of Japan equity sales at Credit Suisse in Tokyo. “So it’s normal to expect volatility in an air pocket of uncertainty.” Japan’s Nikkei closed down 1.5 per cent after weaker-than-expected consumption and inflation data, but was up 5.6 per cent from Q2.
While industrial output beat expectations in August, that did little to lift pressure on the central bank to ease monetary conditions further.
Some Bank of Japan board members doubted whether the central bank’s overhaul of its massive stimulus programme, announced last week, would enhance flexibility of monetary policy, a summary of opinions at the central bank’s September rate review showed on Friday.
Oil prices pulled back after rising 7 per cent in two days after Opec agreed to its first output cuts in eight years.
“The accord has not yet defined individual quotas or other forms of accountability, suggesting that this is a soft output cut at best,” Francisco Blanch, commodity and derivatives strategist at Bank of America Merrill Lynch, wrote in a note.
“OPEC’s action won’t propel prices much above our $70 midyear target.” US crude futures slipped 0.4 per cent to $47.65.
They closed up 1.7 per cent at $47.83 on Thursday, after climbing to a nearly five-week high of $48.32 and were on track for gains of 6.2 per cent in September. Brent dipped to $48.73.
— Reuters
