Daily Agenda: Equities Retreat as Quarter Ends

Deutsche Bank shares skid and concerns over European banks rise; Och-Ziff settles bribery case; U.K. consumer confidence improves; USA Today takes anti-Trump stance.


As a quarter comes to an end, equity markets in Europe sold off in response to concerns over a banking sector that suddenly appears vulnerable to a crisis of confidence. Meanwhile, fixed-income market action suggests that institutional allocators are continuing to shift exposures in advance of a presumed U.S. rate hike with some taking defensive stances. Global asset flows tracked by the quantitative research group at Jefferies Hong Kong indicate that the last trading week of the third quarter, ending on Sept. 28, saw a seven-week high net-inflow of capital into global bonds. Emerging market debt completed a 13th consecutive week of inflows with $27 billion in fresh capital as U.S. bond markets continued to see high-grade corporate issues find favor at the expense of Treasuries. During the same period, gold funds and exchange-traded products also saw a significant increase in fresh investments, suggesting that at least some managers are keeping an eye on inflation. As managers begin to prepare quarterly letters to investors today, their prognosis will be colored by concerns that an eight-year equity bull market has run its course, that a generational shift in interest rates is beginning and that a bizarre presidential election presents unknown variables.

Deutsche Bank shares reach new low over client flight rumors. After media reports on Thursday indicated that several large hedge funds are reducing credit exposure to Deutsche Bank over concerns that the bank’s capital may be insufficient to meet regulatory liability exposure in the U.S., the bank’s stock reached a fresh all-time low in early trading this morning. The bank’s debt issues also declined with Tier 1 bonds now trading below $0.70 on the dollar. Deutsche Bank officials have pointed out that the vast majority of the firm’s clients remain and that the bank’s balance sheet remains strong with more than 200 billion euros in liquidity reserves.

Och-Ziff settles bribery case. On Thursday, New York hedge fund Och-Ziff Capital Management agreed to pay $412 million to settle criminal and civil damages claimed by prosecutors over violations of the Foreign Corrupt Practices Act. According to U.S. authorities, the hedge fund, via a wholly owned African subsidiary, paid bribes totaling more than $100 million to officials in the Democratic Republic of Congo, including to President Joseph Kabila. The bribes purportedly allowed Och-Ziff to acquire mining rights below market value. Daniel Och, the fund manager’s CEO, has publicly expressed regret over the situation and has agreed to a personal sanction by the Securities and Exchange Commission.

U.K. consumers’ spirits rise. Consumer confidence data released today by the GfK Group indicates that the mood of shoppers in the United Kingdom improved in September. The headline index registered at -1, a sharp sequential increase from the prior -7 reading, and better than the consensus forecasts. While still negative, the reading marks a complete rebound to the level reported before the U.K. referendum on whether to exit the European Union, suggesting that British consumers have shaken off Brexit concerns for now. Subindices covering expectations for personal income and the broad economy also improved for the period.

ING to announce layoffs. Dutch newspaper Het Financieele Dagblad reported today that on Monday the Netherlands’ largest bank, ING Groep, will announce major staff cuts to reduce costs. If accurate, the move follows similar steps taken by other major European banks as they struggle with negative interest rates and increased capital demands by regulators.

USA Today denounces Trump. On Thursday, USA Today, a media outlet aimed at Main Street U.S.A. and known for avoiding partisan politics, broke with precedent and weighed in on the upcoming presidential election. The newspaper’s editorial board chose not to endorse a candidate but rather to encourage Americans not to vote for GOP candidate Donald Trump. The editorial blasted Trump’s personal, professional and political failings and questioned his competency to lead the country. Trump’s running mate, Indiana Governor Michael Pence, wrote a counterpoint in the same issue.