UK and Europe
It’s becoming a ‘get yer hard hat on’ situation with bank stocks coming down left and right on financial markets. Sensitivities over the prospects for global growth have spread from oil, metals and China-sensitive assets to banks and other financial institutions.
The start of the week has been a real nose-bleeder and as of yet there is no catalyst for a relief rally.
To offer any chance of earnings growth banks need a growing economy to generate demand for loans, a clean loan book that allows them to lend, higher interest rates and light-touch regulation; none of those currently exist.
A press release from Deutsche Bank (DE:DBKGn) defending its ability to pay the coupons on its debt proved little comfort for rattled investors as major bank share crumbled for a second day on Tuesday.
Now that stock markets are experiencing a long-awaited downturn, some of the distortions created by European Central Bank bond-buying are coming to the fore. With yields on safe-assets pushed lower by central-banking buying, yield-hungry investors were forced into some of the murkier areas on the corporate debt world. Deutsche Bank’s contingent convertible (coco) bonds are one such asset. Because dried up liquidity means all investors can’t head for the door when there’s some stress, other assets like credit default swaps and equities are distorted by the need for hedging.
Miners joined financials as the biggest drag on the FTSE 100 with Anglo American (L:AAL) and Antofagasta (L:ANTO) the top decliners as the price of copper slumped over 3% to its lowest in 10 days.
Shares of clothing retailer Next (L:NXT) topped Britain’s benchmark after rating agency Moody’s tipped it over rival M&S (L:MKS) to outperform and what has become a very competitive landscape.
US
US stocks saw a weaker start on Tuesday over concerns about the global financial sector as the price of US oil remained below $30 per barrel.
Shares of Walt Disney (N:DIS) were lower by over 3% ahead of the media giant’s corporate earnings release after the close. Disney's release of Star Wars VII has broken box office records and merchandise sales have taken off as fast as the Millennium Falcon. Looking ahead, the new Frozen movie is likely to be a big hit but Disney's cable TV channels including ESPN could be a weak spot in quarterly earnings as consumers turn to online streaming.
Shares of Coca-Cola (N:KO) rose after the drinks company beat profit estimates thanks to new product innovations like a smaller can option and a round of cost cuts.
FX
The US dollar was mostly lower on Tuesday, continuing the steep slide that began just over a week ago ahead of testimony from Fed Chair Janet Yellen.
A drop in the Swiss unemployment rate and safe-haven flows into the Suisse to avoid any fallout from European banks sent USD/CHF down over 1% to its lowest since October. The Swiss National Bank could soon have their work cut out to keep the franc low if the dollar has topped and investors are escaping risky Euro-denominated bonds.
Commodities
The price of oil gyrated on Tuesday but spent most of the day lower after Goldman Sachs (N:GS) research said the price could fall beneath $20 per barrel.
The price of gold was less sensitive to Goldman research which issued a price target of $1000 per oz, but momentum does appear to have slowed near $1200 per oz. The fate of the precious metal could rest on whether Janet Yellen chooses to acknowledge the recent ‘financial tightening’ in her testimony to congress.
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