Deutsche Bank’s woes went global overnight with reports clients are moving money away from the firm, knocking stocks and risk appetite lower.
That saw US stocks end around 1% lower and knocked the December SPI 200 futures down 36 points suggesting a weaker open on the local market this morning.
The risk-off tone and continued selling above 77 cents knocked the Aussie dollar, and other commodity currencies, lower and the AUDUSD sits at 0.7634 this morning. The yen found some support in this environment as well and it’s back at 101 after USDJPY reached a high of 101.84 overnight.
Oil is up 1.5%, gold is becalmed, and copper is flat.
Here’s the scoreboard (6.57am):
- Dow: 18143 -195 (-1.07%)
- S&P 500: 2151 -20 (-0.93%)
- SPI 200 Futures (December): 5,426 -37 (-0.7%)
- AUDUSD: 0.7631 -0.0057 (-0.74%)
The top stories
1. 2007 redux? Stocks in the US sank after a story broke that clients were pulling collateral from Deutsche Bank. The bank got slammed again after a Bloomberg report noted that a number of hedge fund clients have started shifting business to other banks.
Specifically, the story said “while the vast majority of Deutsche Bank’s more than 200 derivatives-clearing clients have made no changes, some funds that use the bank’s prime brokerage service have moved part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News”.
A Deutsche Bank spokesman say the vast majority of trading clients understand the group has a stable financial position. But this is how it starts folks. One fund pulls cash, another gets wind of it and pulls their cash, then a few more, then a media story has other investors wondering if they should, maybe, pull some cash, while others do pull cash and pretty soon regardless of how much capital you have, a bank can end up with a liquidity crisis and a loss of trust and confidence of its counterparties.
Let’s hope things don’t go that way for Deutsche but the bank is at the heart of global finance and this is how contagion starts.
2. BHP and Rio roared higher in London trade last night. After an amazing run since the lows earlier this year, BHP rallied another 6.5% and Rio Tinto rose 4.3% in London overnight after multiple broker upgrades.
Her’s a chart of just how well they’ve done since the lows. BHP closed at 1168 in London, more than 100% higher than the 571 low in January:
3. Everyone loves blockchain but no one wants to be the first adopter – so the technology’s future may rest with the ASX. Could blockchain be the Betamax of finance? It’s far too early to tell but Tina Wadhwa reports that while many global banks just love blockchain, no one really wants, or can afford, to be an early adopter unless everyone else is too.
So it just might fall to the ASX to prove the concept. Tina has more here.
4. Everyone wants to say OPEC will fail – here’s what happens next. Crude rallied around 1.5% in WTI terms overnight despite the cacophony of naysayers who think OPEC won’t be able to hold things together or drive prices higher.
It may, or it may not. But either way Elena Holodny has a great post on what comes next.
5. After a solid rally so far this year, gold is drifting at the moment. But here are 50 slides to get the gold bulls running. Can gold rally or is it done? That’s the question the gold bulls are asking themselves at the moment as the monetary/fiscal policy mix appears to have hit an inflection point.
6. Scutty’s flying solo on the podcast this week as Paul Colgan jets around the Business Insider global empire. In this week’s Devils and Details podcast we have a treat for listeners: not just one guest, but two! Richard Grace, chief currency and interest rate strategist and head of international economics at the Commonwealth Bank, makes his debut while James Whelan, investment manager at VFS Group — a regular guest on the podcast — also makes a return.
There is so much to talk about right now.
Key data for the past 24 hours (with thanks to BNZ markets)
GE: GfK consumer confidence, Oct: 10.0 vs. 10.2 exp.
US: Durable gds orders (m/m%), Aug P: 0.0 vs. -1.5 prev.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Whether or not you believe OPEC can defeat its history and agree and observe a production cut, there is still a case for energy stocks. The reasoning is that energy stock prices continue to hold a risk premium for future oil shocks. As the oil price stabilises, this risk premium should be removed – meaning energy shares can rise whether or not the oil price goes higher.
In previous chats about energy shares we’ve looked at the desirability of natural gas in a carbon constrained universe. Investors who are already full with Woodside and Oilsearch may dig deeper into the sector – and find Beach Energy (BPT). Alert readers will notice I’ve skipped over Santos. In my view their assets are old and poorly run. For Cooper Basin exposure, and a better oil/gas mix, I prefer Beach.
And by the look of the chart, so do traders. However the downtrend line is drawn, it is clearly broken. Yesterday’s solid gain may see some investors waiting for a pullback to around 60 cents. However, the action can be construed as a break out, and BPT may not look back from this point.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC