Deutsche Bank fine compounds miserable week for Europe
Weak US data reduces likelihood of September Federal Reserve rate hike
Amonster fine for Deutsche Bank compounded a miserable week for European stocks yesterday, while bonds bounced as weak US retail sales figures triggered a pullback in Federal Reserve rate hike expectations.
News overnight that the US Department of Justice had levied a far bigger-than-expected $14 billion (Dh51 billion) fine on Germany’s largest bank sent financial stocks across Europe tumbling amid worries others could also be clobbered.
Bank shares were on course for a weekly loss of more than 6 per cent, their biggest since Britain’s vote to leave the EU at the end of June. Europe overall has also lagged the rest of the world, with market falls of almost 4 per cent in Italy, Spain and Portugal.
“With Deutsche Bank facing a $14 billion claim against it in the US for alleged irregularities in the way it sold mortgage securities before the financial crisis, you have to wonder if financial regulators are starting to do more harm than good,” said ETX Capital analyst Neil Wilson.
“How can banks hope to move on from the crisis?” Wall Street was also expected to reopen lower although it was one of the few major markets still likely to end the week higher. MSCI’s 47-country “All World” index is headed for its fourth weekly loss in five.
Money printing
The week’s big anxiety that the low interest rate and mass money printing tactics of the major central banks might be losing their potency looked like it had been put on hold, however.
The difference between what investors demand to hold 10- or 30-year government bonds compared to shortterm two-year debt has been climbing sharply, but yields fell broadly yesterday after Thursday’s lacklustre US retail sales data.
That also kept the dollar on course for a second week of falls against the yen as it dropped below 102 yen. Both the Fed and the Bank of Japan hold policy meetings this week that will be closely watched by markets.
“We had an unusually calm summer considering the Brexit vote and the US political risk, and I think we are now paying it back,” said ABN Amro’s Chief Investment Officer, Didier Duret.
“With higher yields and lower equities it has felt like there is no place to hide ... But for us this is a short-term move and there is no reason to panic.”