Deutsche Bank (DB) is the biggest story of the day.
News that hedge funds are decreasing exposure to DB shares triggered an aggressive sell-off in financial stocks globally.
In London, financials (-2.08%) opened the day under heavy selling pressure following a 6.67% sell-off in DB shares in New York.
Barclays (-4.84%), Lloyds (-3.75%), HSBC (-1.97%)
In Frankfurt, DB shares are currently trading 6.62% lower.
Deutsche Bank’s CDS (credit default swaps) rose to a historical high as investors see the counterparty risk mounting. The cash is flowing into safe haven assets as chatters about a potential systemic risk hit the wires.
While talks of a potential, Lehman-like systemic risk are mainly speculative, from what we know at this time, the stress in the markets is not related to Deutsche Bank’s liquidity situation, yet the ability of the market to finance DB’s debt over the next 9 to 18 months.
Of course, some already expect the governments to step in to ease tensions. For the moment, the stress in the financial complex is acceptable, and does not require any immediate action from the governments. Of course, if things get worse, we could well expect a preventive action to avoid the possibility of a systemic risk.
While we do not rule out the possibility of renewed tension in the financial markets, the amplitude of such a scenario is hard to price in. We are already in a low-rate, post-crisis environment as the result of the 2007-2008 subprime crisis. The financial markets are certainly not well armoured to face another financial crisis.
Randgold Resources (+1.52%) and Fresnillo (+1.33%) are among the rare stocks in the green as investors are rushing into safe haven assets.
With the financials under pressure, the post-OPEC appetite remained short-lived.
Asia closed the week on a negative note, as oil stagnates following the post-OPEC rally.
Nikkei lost 1.46% on a faster than expected deflation (-0.5% vs -0.4% expected) despite the Bank of Japan’s (BoJ) efforts to boost consumption. The BoJ meeting minutes revealed that Japanese policymakers are concerned about the lack of relationship between the monetary base and the inflation.
In China, the manufacturing PMI printed 50.1 in September, in line with expectations.