Monday 9.30am BST. European equities indices are lower, hit by selling in the financial sector as investors drop riskier assets, with attention turning away from the outlook for monetary policy and towards US presidential politics.
The Xetra Dax 30 is 1.6 per cent weaker in Frankfurt, with shares in Deutsche Bank weakening by as much as 6 per cent to their lowest level since at least 1992 after German press reports that authorities are unwilling to offer it state-sponsored assistance as it faces multibillion-dollar claims against it from the US Justice Department.
The region-wide Euro Stoxx 600 is down 1.5 per cent, while the FTSE 100 in London is down 1.2 per cent. Its financial stocks are also exerting the biggest drag at sector level.
The wider move away from risk comes with the first debate between the US presidential candidates due on Monday, and brings with it the potential to up-end poll ratings in the race for the White House between Donald Trump and Hillary Clinton.
“We think the broader market could sell off if it looks like Trump might win, although it is unusually tough this year to forecast sector winners and losers based on the election outcome since Trump’s positions deviate from Republican orthodoxy,” said Brian Gardner at Keefe, Bruyette & Woods.
“Despite the recent tightening of the polls, Clinton maintains a small lead in the average of polls and has the easier pathway to victory … To pass any legislation in 2017, compromise will be critical, so we advise investors not to read too much into the election results.”
Oil prices are higher amid speculation about the outlook for a global supply freeze. Prices sank 4 per cent on Friday as Saudi Arabia signalled that this week’s informal Opec meeting in Algeria would not yield a formal decision on production cuts.
However, it was reported that Algeria’s energy minister said over the weekend that Saudi Arabia had offered to cut its output to January levels. On Monday, Brent crude, the international benchmark, is up 0.5 per cent to $46.13 a barrel and West Texas Intermediate is up 0.3 per cent to $44.61.
Gold is down 0.2 per cent at $1,334.21 an ounce, while the US dollar index — a measure of the greenback against a basket of global peers — is flat at 95.49. The yield on 10-year US Treasuries, which moves inversely to prices, is down 2 basis points at 1.60 per cent. The euro is up 0.1 per cent against the dollar at $1.1232, while the pound is down 0.2 per cent at $1.2941.
Emerging market currencies are under pressure as risk appetite fades, with Friday’s downgrade of Turkey’s debt adding to the uneasy feel to trade. The lira has slumped to its lowest level against the dollar since early August, weakening to TL2.99 against the world’s reserve currency. Meanwhile, the Philippine peso touched a seven-year dollar low.
Japanese stocks are weaker. The Topix, down 1 per cent, is continuing a run of relative outperformance versus the exporter-dominated Nikkei 225, which is down1.3 per cent as the yen strengthened for the first time in three sessions.
The Japanese currency was trading 0.1 per cent stronger on Monday at ¥100.91 per dollar. Despite weakening on Thursday and Friday, the yen’s 1.2 per cent strengthening over the week was its best performance in nearly two months as traders were disappointed by the BoJ’s decision to keep interest rates unchanged and deliver a multitude of tweaks to policy that have been met with scepticism.
Shuichi Ohsaki, Japan economist at Bank of America Merrill Lynch, doubted if the BoJ’s decision to cap the 10-year Japanese government bond yield at zero per cent and allow for an overshoot of its 2 per cent inflation target would boost consumer prices.
“The monetary base has hugely expanded since quantitative and qualitative easing was introduced in April 2013, but amid weak growth in bank lending, the rise of money stock has been limited,” he said.
“The BoJ was already committed to positive inflation, so we will have to watch future developments to see what effect the BoJ’s new inflation-overshooting commitment has on people’s price expectations.”
That is likely to see Japanese inflation figures for August, due on Friday amid a raft of other closely watched domestic data, come under additional scrutiny from analysts and traders.
The yield on benchmark 10-year JGBs was down 0.6 basis points to minus 0.051 per cent.
Hong Kong’s Hang Seng is 1.3 per cent lower, with the Shanghai Composite off 1.8 per cent.
On Friday, the S&P 500 closed 0.6 per cent lower, but still ruled off on a 1.2 per cent gain for the week — its best weekly performance since mid-July. European stocks declined 0.7 per cent.
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