Deutsche Bank: The devil is in the detail; The “elephant curve”: fact or fiction?; Tech disruption causes another casualty: Blackberry exits smartphone market; Fine margins in US Presidential ‘horse-race’; Oil: The sleeping giant OPEC awakes?
The story behind Deutsche Bank
Deutsche Bank has lost 55% of shareholder value since the beginning of the year but continues to function as a bank with €233bn of liquid reserves.
Given the generally sound state of DB’s liquidity and operational business, they might see this out with only a near-term hit to business. If the shareholder rebellion gets worse, a ‘white knight’ may be needed; one with enough capital and investor trust in its own management, to seize the opportunity. My money would be on a sovereign wealth fund stepping in and making a return on investment similar to the US taxpayers’ gain from their stakes in the US banks back in 2008-2010!
Deutsche Bank: The devil is in the detail
Despite the statements from the German government, we would be very surprised if officials were not – at least in private – preparing a possible rescue plan for DB, should the need arise. German newspaper Zeit said that the government was working on a contingency plan for the bank.
Should the company need a white knight, we could see a situation where another global institution(s) take over parts of the bank, in the way that Nomura of Japan took on Lehman’s European assets, while Barclays bought its US assets.
The “elephant curve”: fact or fiction?
If income inequality influences political opinion (which in our view it does), it will also influence the economy. Financial markets will react to political developments to the extent these could either support or hinder reform and economic growth. This is an issue markets are now very much aware of. However, pricing this type of uncertainty and political risk is difficult and is set to get even more difficult in view of the US elections later this year.
Tech disruption causes another casualty: Blackberry exits smartphone market
In what has been called the end of an era, Blackberry, the maker of keyboard-based smartphones, has decided to cease production of smartphones and pivot towards providing software and services, after finding it difficult to compete with the likes of Apple and Google who now dominate the space.
Fine margins in US Presidential ‘horse-race’
Hilary Clinton’s apparent triumph in the first televised debate was reflected in the movements of foreign exchange (Forex) markets, who saw notable swings in the Mexican Peso, Canadian Dollar and Japanese Yen as Forex traders in Tokyo watched the debate live. The Peso in particular seems to be a good barometer to markets’ assessment of the situation, jumping 2% on the dollar after several weeks of decline which correlated nicely with Trump’s rise in the polls.
Trump’s assertion that the North American Free Trade Agreement (NAFTA), signed into US law by former President Bill Clinton, was “the worst trade deal maybe ever”, together with his suggestion some months ago of introducing tariffs onto US companies who outsource their production to foreign countries, does seem to paint an altogether less market-friendly picture than that of Clinton.
In our view, just as worrying to markets as such proposals is the Republican candidate’s inconsistency on them, seemingly flipping from one position to another. The uncertainty this creates, much as with Brexit, is what unsettles investors more than policy.
Oil: The sleeping giant OPEC awakes?
The Algiers summit threatened to become an entirely fruitless affair, until it was revealed that in the final meeting OPEC members had come to the agreement to impose a ‘cap’ on oil output. Consequently, Brent Crude rose 5%, hitting $49 a barrel, with major firms in the energy market experiencing similar shocks to share prices. The deal is to be formalised at OPEC’s next meeting in November.
Certainly, the deal as it stands doesn’t provide a fundamental change in world oil supplies, but it does mark OPEC’s return to active market management, which, in itself, should promote confidence.
The period between now and November is still far from stable. Russia is currently producing at an unsustainable level of 11m BPD, it remains to be seen whether U.S. shale oil producers will raise output negating the effects of the supply cut and a renewed disagreement between Saudi Arabia and Iran cannot be ruled out.
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