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Deutsche Bank Revives the Ghost of Lehman Brothers

Embattled European Bank Faces Increased Pressure as Shareholders Bolt

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With rumours swirling about potential rescue talks from the German government amid continued denials from Deutsche Bank about the institution’s imminent demise, the situation is quickly beginning to resemble the collapse of Lehman Brothers.  The result has sent a ripple effect throughout the European banking system.

European Banks Under Stress


Shares of Deutsche Bank plummeted in early Friday trade following reports that a large number of hedge funds were trimming their exposure to the German financial giant. The bank has seen its borrowing costs steadily rise on the face of a potential $14 billion fine from the US Department of Justice.  Deutsche Bank’s inability to raise enough cash to tide over the current crisis has fuelled speculation that Europe’s embattled banking sector could come under greater stress if the German government does not intervene. Analysts say the situation could get much worse for European banks as they grapple with eroding profits amid ECB’s negative interest rate regime.  Already, German peer Commerzbank has announced plans to cut 9600 jobs and scrap the dividend in an effort to shore up its own finances. The DAX 30 index is trending back above 10,200 after briefly falling below the support level.

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eurusddaily09302016

Dow Records Triple Digit Losses After GDP Upgrade


US markets ended sharply lower on Thursday as investor concerns about the future of Deutsche Bank weighed on the wider financial sector. The Dow Jones Industrial Average, S&P 500 and NASDAQ Composite all hit session lows after Bloomberg News reported that 10 hedge funds were cutting their exposure to the troubled European bank.  Earlier in the session, the final reading on second quarter GDP showed the economy grew at a slightly faster pace than estimated. According to the US Department of Commerce, second quarter GDP rose at an annualized pace of 1.40%.  In related economic news, data from the National Association of Realtors showed pending home sales fell 2.4 percent last month, recording the third straight month of declines.  The US dollar is trading higher on the session against the Euro as resurgent banking fears hit the Euro Area.

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Manufacturing in China Expands


According to the latest manufacturing survey of factories around the country, China's small and medium-sized firms expanded in September.  The Caixin/Markit manufacturing PMI came in at 50.1 for this month, a tad above last month’s reading of 50.0 reading, but still below July's 50.6. Although a reading above 50.0 indicates expansion, the tepid pace suggests that manufacturing has not fully recovered.  The latest report comes at a time when economists are divided about the growth outlook of the world's second-biggest economy.  On one hand, last month saw industrial firms record their fastest profit growth in three years. But worries of a property market bubble linger as average home prices continue rising, spiking 9.20% in August.  Mainland equity benchmarks edged slightly higher following the release, with the Shanghai Composite up 0.20%.

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usdcnhdaily09302016

BOJ Under Pressure After Inflation Falls




In another blow to the Bank of Japan’s extreme monetary policy measures including expansive quantitative easing and negative rates, the latest inflation data shows that the strategy is having a limited impact.  According to the latest inflation data, core consumer prices in Japan fell during August, marking a sixth consecutive monthly drop while increasing pressure on the Bank of Japan to further ease monetary policy. The headline inflation figure printed at -0.50% on an annualized pace, matched by the core figure.  Household spending also dipped for a sixth straight month, pointing to sustained weakness in private consumption, which accounts for almost 60.00% of the economy.  Additionally, unemployment rose modestly to 3.10% from 3.00% although industrial production did see a pickup according to preliminary estimates.  The Yen continues to appreciate, with USDJPY trending below 101.00 since the early European hours.

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