Friendly Sunday User;
Global markets fell at the end of a volatile week on Friday with Deutsche Bank again in the spotlight.
GLOBAL MARKETS ROUND-UP
Asian stocks followed Wall Street lower early on Friday, while oil prices held close to the highest level in almost a month on optimism over an OPEC plan to curb output. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, on track for a 0.4% drop for the week. It is poised for a 2.2% gain in September, and a 9.5% jump in the third quarter. Japan’s Nikkei retreated 1.5% at the time of writing, late in Tokyo’s trading session, after sluggish consumption data. Nikkei is down 1.7% for the month, but set to end the quarter 5.7% higher.
South Korea’s KOSPI slipped 0.8% after manufacturing activity contracted for a second month in September to hit a 14-month low, and August industrial output posted the biggest decline in 19 months.
Asian stock markets were largely reacting to falls of US equities on Thursday. Wall Street’s main indices lost about 1% as Deutsche Bank’s US-listed shares slumped to a record low. This followed a report by Bloomberg News that a small number of some of the bank’s largest trading clients had withdrawn excess cash and positions. In a statement, Deutsche said its trading clients remained largely supportive. “We are confident that the vast majority of them have a full understanding of our stable financial position, the current macro-economic environment, the litigation process in the US and the progress we are making with our strategy,” it said.
The immediate cause of Deutsche’s crisis is a demand for a settlement of up to $14bn from the US Department of Justice (DoJ) related to an investigation into the bank’s sales of mortgage-backed securities around the time of the ‘credit crunch’. The bank has disputed the size of the potential settlement and continues to negotiate an agreed sum with the DoJ. Deutsche’s US-listed shares fell more than 9% in New York on Thursday after touching a record low in Europe this week. The bank’s US shares closed down 6.7% at $11.48 after earlier falling to as low as $11.185.
Deutsche’s woes, alongside a grilling of Wells Fargo’s chief executive by US lawmakers amid a call for the bank to be broken up due to a scandal over its opening of client accounts without agreement, helped push the S&P 500’s bank sector sub-index down 1.6%. Oil shares helped to limit the overall impact on the US market however. Oil prices extended gains, rising more than 1% on Thursday, on optimism over an agreement by OPEC to cut output, but the rally was limited by doubts that the reduction would make a substantial dent in the global crude glut.
US crude oil futures added 1.7% to $47.83, after an earlier climb to reach a high of $48.32, the highest level in almost five weeks. They were little changed in early morning trading on Friday. Brent crude oil futures rose 1.1% to $49.24 on Thursday, a three-week high. The US dollar was little changed at 101.09 yen, heading for a flat end to the week, but was down 2.2% for September, and 2% lower for the quarter. The euro was also steady at $1.12165, on track for a 0.1% decline for the month, but up 1% for the quarter.
ECONOMIC FOCUS POINTS
There were few high-impact economic readings released earlier in the week, with many of the most closely watched data only due to be published later on Friday. A relatively unusual revision at the final stage of assessing US Gross Domestic Product (GDP) in the second quarter (Q2) was notable on Thursday. Earlier estimates had pointed to 1.1% year-to-year growth of the economy in the second quarter, though the final assessment was 1.4%, helped by stronger than expected contributions from services sectors.
It emerged on Friday that 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. The summary of opinions at the central bank’s September rate review released on Friday showed wariness remained among BoJ policymakers even after they decided to abandon the central bank’s ‘base money’ targets in favour of ‘yield curve’ control, whereby longer-term rates would be supported and shorter-term rates targeted lower.
Among early economic releases on Friday morning were Japanese consumer prices data for August showing a 0.5% fall from a year earlier, missing expectations. Consumer prices in the Tokyo area in September dropped 0.5%, the fastest year-on-year drop since 2013. Japanese industrial output rose 1.5%, beating expectations for a 0.5% rise.
A little later on Friday, an independent reading of China’s factory activity showed it expanded in September as domestic and export orders picked up, but the improvement was marginal and manufacturers continued to shed jobs. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 50.1, in line with analysts’ forecasts and slightly higher than August’s no-change mark of 50.0, which separates expansion of activity from contraction on a monthly basis.
The reading has bounced around the neutral 50 level for the best part of five years, pointing to stubbornly sluggish demand. Output expanded in September, but at the slowest pace in three months, the survey showed. Overall new orders also continued to show modest growth, with new orders edging into expansionary territory after nine months of contraction.
Later on Friday morning, the conclusion of the UK’s Q2 GDP assessments will be released. Whilst the first two estimates of GDP typically are confirmed in the final assessment, economic volatility in the UK in recent months increases the chances of an amendment of the final figures. So far, GDP growth has been assessed as 2.2% year-on-year in Q2 and 0.6% on a quarterly basis.
A Eurozone Consumer Price Index update will also be released on Friday morning, whilst the August reading of the US Personal Consumption Expenditures (PCE) Index is due in the afternoon. The PCE is the inflation measure most watched by the Federal Reserve. It is forecast to rise just 0.2% month-on-month in August.
Regards All Users!
By FxCox Global Research.