There the rally in European equities has pressed the pause button with weak German export data throwing up growth concerns ahead of central bank minutes released later on Thursday.
Germany’s trade surplus contracted much more than expected in August to 15.3bn, down from 25.0bn with exports crashing -5.2%, the biggest monthly decline since 2009.
There is good reason that China’s currency devaluation sparked such concern in European markets, and we’re starting to see some evidence of why. Germany has a very export-focused economy and the biggest area of growth, emerging markets from Russia to Brazil to China, are all slowing if not already in recession. China’s economic slowdown and currency devaluation have been a double whammy for German exports.
It’s not been a great few weeks for Germany Plc. Perhaps its karma after German politicians bullied Greece into an austerity package the population had democratically voted against. Volkswagen’s emissions scandal has been followed by a string of poor economic data releases and now the country’s largest bank is in trouble. VW’s US chief will testify before lawmakers in Washington this afternoon.
Deutsche Bank (XETRA:DBKGn) has shocked markets ahead of its scheduled earnings release on October 29 by saying it will lose €6bn in the third quarter, its worst loss in over a decade. DB Shares are reacting positively to newly installed CEO John Cryan making his mark by kitchen-sinking his first quarter in the role
Having already announced Deutsche Bank will cut a quarter of its workforce; the bank has announced massive write-downs. The write-downs are largely goodwill/intangibles from its investment banking business triggered by regulatory changes. There has also been a write down on the sale of its ‘Postbank’ division and its stake in China’s Hua Xia Bank and another €1.2bn provision to cover litigation.
The reason DB shares haven’t reacted more negatively is that the bank has said the write-downs will not substantially impact regulatory capital ratios. Deutsche Bank trades below its tangible book value because investors think the bank is undercapitalised. By selling assets, making provisions and likely cutting its dividend Mr Cryan will hopefully avoid capital-raising through a rights issue.
The FTSE 100 was trading essentially flat ahead of the latest policy decision from the Bank of England. A rise in Air France passenger figures gave airlines Easyjet and IAG (LONDON:ICAG) a lift while recently beaten-up healthcare shares Shire and AstraZeneca rose on signs of a letup in Wall Street’s biotech sell-off.
Stocks in the US look set to open weaker leading into the minutes of the September Fed meeting where interest rates were left on hold. Markets have been buoyed by the idea the Fed will remain on hold for longer but there’s a risk that a hawkish tone taken in the minutes could put a rate rise this year back on the table.
USA pre-opening levels
- S&P 500: 12 points lower at 1,983
- Dow Jones Industrial Average: 102 points lower at 16,810
- Nasdaq 100: 28 points lower at 4,305
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