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Market Talk – September 30, 2016

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The one thing that markets do not like is uncertainty and that is exactly what we have suffered from the past couple of days. Asia reacted to the Deutsche Bank news with heavy selling despite better than expected numbers from Japan and in late trading the futures have responded yet again. Having lost 1.9% in the Hang Seng and 1.5% in the Nikkei in late US trading these have been eroded as DB’s ADR bounce, taking them back close to unchanged Thursday levels. The late US rumored reports are that the Dept. of Justice could settle on a $5.4bn sum and not the $14bn originally requested from Deutsche Bank. Yet, even before these reports the US markets were trading well with triple digit gains in the DOW of around 0.75% indicating a decisive move away from Europe.

Deutsche Bank shares were hit first thing when the DAX opened, trading into single digits and at one point were 9.5% lower. Even before the DOJ possible settlement rumors however, the shares were bouncing so then just simply accelerated the strength upon the rumor with US ADR’s closing up 14%. This late lift aided the DAX in the final hour of trading resulting in a 1% gain for the European cash close. FTSE had been struggling all day having seen worse than expected GDP data 2.1% against an expected 2.2% forecast. GBP has been struggling all day also and this evening closes off the lows but remains under pressure closing at 1.2965 (-12% YTD).

The DOW, S+P and NASDAQ all performed well from the opening with many offering the news that Janet Yellen commented the FED could intervene directly in the equity market if it were allowed to do so! Currently, unlike the ECB and BOJ the FED is not permitted but has suggested that Congress may wish to consider it! For the month and quarter end we have seen a healthy bounce on the last day but remain in the broader trading range. Next week we have ISM on Monday and being a new month the US employment numbers on Friday. All eyes will remain transfixed on Deutsche Bank though and will probably set the trend for all of Europe.

Treasuries eventually saw a 3bp hike across the curve with 2’s closing 0.76% and 10’s at 1.59% (2/10 spread at +83bp). German Bunds lost all of their earlier strength eventually closing at -0.12% (+3bp on the day). US/Bund 10yr spread closes +171bp. Italy 19yr closed 1.18%, Greece 8.10%, Turkey 9.49%, Portugal 3.30% and UK Gilt 10yr at 0.74%.