NPV for Sprott and Central Fund of Canada

US Futures; Euro Stocks Slide On Deutsche Bank Liquidity Fears; Bonds Bid

Following yesterday’s paradoxical S&P surge catalyzed by a bevy of dreadful economic news, the overnight session has seen some good old “risk off” mood which first hit European shares as a result of the previously reported $14 billion DOJ claim against Deutsche Bank, which sent Europe’s biggest bank tumbling, dragging the banking sector lower, while a continued drop in the price of oil pushed energy companies lower, and then spilling over to US equity futures which were down 10 points at last check.

In early trading, DB was trading down around 8%, while Deutsche Bank’s €1.75 billion of 6% additional Tier 1 bonds, the first notes to take losses in a crisis, fell 4 cents to 79 cents. The bank’s 650 million pounds of 7.125% notes dropped 5 pence to 81 pence on the pound on concerns the bank may be forced to shore up billions more in liquidity.

“The Deutsche Bank news kind of rattled markets,” said Jasper Lawler, an analyst at CMC Markets in London. “It just goes to show that we’re still dealing with the same old headwinds: this low-interest rate environment, which will go on for a while, and the regulatory scrutiny.”

“None of the European banks has settled with the DOJ on RMBS yet so Deutsche Bank is the first to enter negotiations with Barclays, UBS, Credit Suisse and RBS also facing this issue,” RBC analyst Fiona Swaffield said in note. “We would expect Deutsche Bank’s final settlement to be significantly below the starting negotiation amount as seen at other banks although it remains uncertain where the final settlement will end up and the final impact on the capital ratios. Resolving this issue remains key for Deutsche Bank as it will give more clarity on capital, although there are a number of other moving parts – namely the Russian equities investigation and also the IPO of Postbank.”

The markets’ attention was so focused on DB in particular, and European banks in general (Italy’s perpetually insolvent Monte Paschi was halted after falling as much as 7.8%, after a report the bank’s recapitalization could be done through a private placement to institutional investors and a voluntary subordinated bonds conversion with minimum threshold, along the lines of Greek banks’ recapitalizations, Il Sole 24 Ore reports, as the previously planned bailout appears to have failed to attract attention), that risk off flows finally prompted some buying of the German long end, which saw the 30Y Bund yield slide from 0.7% nearly 10 bps lower. Additionally. Germany’s 10-year bund yield fell four basis points, dropping below zero for the first time in a week, and wiping out a weekly increase that had been driven by the European Central Bank failure to flag an immediate expansion of bond-buying program.

Europe’s Stoxx 600 Index was lower for the sixth time in seven sessions, while S&P 500 Index futures also fell. Russia’s ruble slipped before a forecast cut in interest rates and as U.S. crude traded below $44 a barrel amid concern rising exports from Nigeria and Libya will add to a glut. German bonds rallied while Portuguese government securities sank. Earlier, the MSCI Asia Pacific Index rose for the first time in seven days, albeit with markets in half of the region’s 10 biggest economies shut for holidays.

Lenders fell the most of the equity gauge’s 19 industry groups, with Deutsche Bank tumbling 6.8 percent. The German lender said it’s not willing to pay the claim from the DOJ to settle an investigation into its sale of residential mortgage-backed securities. Credit Suisse Group AG and Royal Bank of Scotland Group Plc slid at least 3 percent.  Energy companies were the second-worst performers after banks, while Fiat Chrysler Automobiles NV retreated 1.9 percent after saying it’s recalling about 1.4 million cars and trucks in the U.S. Health-care companies, deemed safe in times of economic turmoil, posted the best performances. British private-equity firm SVG Capital Plc gained 4.6 percent after saying an unsolicited bid by HarbourVest Partners LLC undervalues the firm and that it has other offers.

Deutsche Bank’s woes are adding to the worst week in a month for European stocks, after global markets were shaken by concern central banks in the euro area and Japan are becoming hesitant to boost stimulus. The cost of insuring corporate debt has increased this week by the most in three months, commodities prices have tumbled and yield curves have steepened. The Bank of Japan will conclude a policy meeting on Wednesday, the same day as a Federal Reserve decision.

The MSCI Asia Pacific Index was up 0.6 percent, trimming this week’s drop to about 2.2 percent. Philippine stocks dropped by the most in three months. Markets in mainland China, Taiwan, Malaysia, South Korea and Hong Kong were closed for holidays.

S&P 500 Index futures slipped 0.2 percent, after a rebound in
consumer and health-care companies pushed equities up 1 percent on
Thursday.

Elsewhere in bond land, Portuguese bonds extended their slide, pushing the 10-year yield to the highest since June 24, when the U.K.’s Brexit vote sparked selloff of higher-yielding assets. S&P Global Ratings set to review the nation’s debt Friday. Other peripheral bonds also trailed behind German securities as Bundesbank President Jens Weidmann said the ECB should continue following its capital key rule when acquiring bonds under its quantitative-easing program.

Long-term bonds in the U.S. took a knock this week, lifting the 30-year yield to levels last seen in June, amid speculation monetary loosening around the world has about run its course. Japan’s 30-year yield climbed to a six-month high during the week and rates on short-term securities fell on bets the BOJ will adjust policy to steepen the yield curve. The rate on notes due in September 2046 increased by four basis points to 0.56 percent.

In other key overnight news, Japan’s central bank remains completely confused what it should do next
week, while Japan’s finance ministry said it will probably closely
examine what’s going on with Chinese purchases of Japanese securities
and act appropriately; ECB’s Villeroy says ECB’s policy effective, to
continue in this direction; ECB’s Jazbek adds ECB policy working, no
need to change it for now; Merkel says EU survival at stake as chiefs
plot post-Brexit path; while

Market Snapshot

• S&P 500 futures down 0.5% to 2127
• Stoxx 600 down 0.3% to 339
• FTSE 100 down 0.2% to 6715
• DAX down 0.5% to 10384
• German 10Yr yield down 4bps to -0.01%
• Italian 10Yr yield down 3bps to 1.31%
• Spanish 10Yr yield down 1bp to 1.06%
• S&P GSCI Index down 0.7% to 347.1
• MSCI Asia Pacific up 0.6% to 137
• Nikkei 225 up 0.7% to 16519
• S&P/ASX 200 up 1.1% to 5297
• US 10-yr yield down 2bps to 1.67%
• Dollar Index up 0.09% to 95.38
• WTI Crude futures down 1.1% to $43.41
• Brent Futures down 1.2% to $46.01
• Gold spot up less than 0.1% to $1,315
• Silver spot down 0.2% to $18.96

Global Headline News

• Deutsche Bank Drops on $14 Billion DOJ Claim Lender Rebuffs: Negotiations are ‘just beginning,’ lender says in statement
• Europe Said to Threaten Revolt Over Bank Capital-Rule Overhaul: 2-day meeting of Basel Committee concluded on Thursday
• Oracle Sales Miss Estimates on Slow Transition to Cloud: Demand sluggish for traditional data, business software
• IPhone Buyers Poised for Letdown, Apple Supply Trails Demand: Pre-orders required to buy an iPhone 7 Plus on first sales day
• Spotify Is Said to Seek Reset in Negotiations With Record Labels: New music releases could be limited to subscription tier
• Tesla Says Mobileye Tried to Block Its Auto Vision Capability: Says Mobileye knew about its Autopilot for 3 years
• Fiat Chrysler Recalls 1.4 Million U.S. Vehicles Over Seat Belts: 3 fatalities, 5 injuries possibly related to situation
• Chevron Said to Narrow Bids for $3 Billion Asian Geothermal Sale: China General Nuclear Power invited for second-round bid
• Dollar Rally Fades as Odds of Fed Move This Year Drop Below 50%: Fed’s Brainard urged ‘prudence,’ while US data disappointed
• Oil Set for Weekly Drop as Resilient Supply Seen Sustaining Glut: Oil falls on speculation a global crude glut will persist
• Vale Said to Sign $1 Billion Bank Funding Backed by Glencore: Glencore said to help organize bank syndicate for loan

Looking at regional markets, we start in Asia where stocks traded higher following the positive lead from the US where tech outperformed after continued strength in Apple shares, while poor Industrial Production and Retail Sales figures further dampened the likelihood of a Fed hike next week. ASX (+1.1%) and Nikkei (+0.7%) took the impetus from the firm US close with energy outperforming in Australia following a rebound in the complex, while gains in Japan were capped by a firm JPY. The remainder of the region was quiet with China, Hong Kong, Taiwan, Malaysia and South Korean markets all shut for public holidays. 10yr JGBs saw a lack of demand amid flow’s into riskier assets, while the BoJ was relatively restrained in regards to the amount of today’s buying operations. As the WSJ again confirmed what we reported earlier in the week, the BoJ is said to be split over monetary easing program, with some of the board thinking there should be more flexibility in bond purchases.

Top Asian News

• BOJ ‘Absolutely Certain’ to Stop Buying Nikkei ETFs, CLSA Says: CLSA says it’s “absolutely certain” BOJ will stop buying ETFs tracking Nikkei 225 amid criticism
• Japan Looks to Bring in More Foreign Workers as Population Falls: Nation planning to bring more overseas workers to bolster shrinking labor force
• Mitsubishi to Pay $1.4 Billion to Raise Lawson Stake to 50%: Plans to turn Lawson into unit
• Japan to Step Up Engagement in South China Sea Against Xi’s Will: Japan’s new defense minister said her nation would step up activity in the South China Sea
• Samsung Recalls 1 Million Galaxy Note 7 Phones on Risk of Fire: U.S. safety regulators start official recall of Samsung’s Galaxy Note 7 smartphone
• Solar Industries Cuts FY17 Rev. View on Forex, Lower Prices: CFO: Company hurt by weaker Nigerian, Turkish currencies and lower product prices in India

European stocks have tradeD lower across the board in the final trading session of the week with the Dax lower by 0.5% and financial names underperforming amid reports that Deutsche Bank (-8.0%) could face a USD 14bIn lawsuit. This has subsequently squeezed financial names across the continent with UBS, Credit Suisse and RBS all lower. Furthermore, Banca Monte de Paschi trade at record lows after falling 7.3% as the troubled Italian lender’s outlook continues to be questioned. Additionally, energy names are doing little to inspire confidence across Europe with WTI and Brent crude futures failing to recover from yesterday’s declines. As a side note, today also sees quadruple witching for US and European equities. Fixed income markets have benefitted from the softness in equities with the German 10yr yield subsequently climbing back in to negative territory with no notable supply for the session. Of note, there has been a notable widening of the GE/PO spread with some attributing this to comments from ECB’s Weidmann and his reluctance to abandon the capital key.

Top European News

• StanChart Said to Mull Private-Equity Unit Spin-Out to Managers: StanChart Private Equity said to manage $5 billion
• Telenor Said to Consider Options for Stake in Malaysia’s Digi: Carrier may explore a JV or sale of Digi holding
• SVG Says Harbourvest Offer Undervalues Co, Has Other Approaches: Got approaches from a number of credible parties
• SOBI CEO Sees Potential in Biogen Spin-Off, Long-Acting Products: Co. has up to $700m for M&A in next 12-18 months
• Knorr-Bremse Increases Haldex Offer in ZF Takeover Tussle: Haldex suitor offers 125 kronor a share, outbidding ZF
• EU Targets October Ratification of Paris Climate Accord: Fast-track approval could occur by Oct. 7, EU’s Delbeke says
• Investec Forecasts Decline in First-Half Operating Profit: Rand depreciation, rising impairments in South African business
• Novo’s Diabetes Medicine Shows 26% Reduction in Heart Risks: Semaglutide may launch in first quarter of 2018, Novo says

In FX, the Bloomberg Dollar Spot Index was little changed following two days of declines. Futures prices put the probability of a Fed rate hike next week at 18 percent following Thursday reports that showed U.S. retail sales declined 0.3 percent in August from the previous month and industrial output dropped 0.4 percent. The chance of a rate increase this year has slipped below 50 percent for the first time in a month.  The South African rand gained 0.9 percent, heading for the biggest weekly increase since July after the disappointing U.S. economic data and dovish Fed comments. The currency was heading for a weekly gain of 2 percent, the most among 31 major currencies tracked by Bloomberg. “Near term, the dollar is likely to come under pressure as the Fed stands pat next week,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “However, as we look towards the end of the year, we still see a resurgence in dollar strength as the Fed prepares the market for a December hike.” The yen was little changed at 102.03 per dollar. Just over half of economists surveyed by Bloomberg anticipate the BOJ will ease monetary policy further on Sept. 21, with an interest-rate cut seen as the most likely option.  The U.K. pound dropped 0.3 percent to $1.3202, on speculation that potentially painful Brexit negotiations will prompt the Bank of England to ease monetary policy further. Officials maintained their monetary policy stance Thursday and indicated there’s a chance of another interest-rate cut this year.

In commodities, crude fell 1.2 percent to $43.38 a barrel in New York, extending its weekly slide to more than 5 percent. OPEC members Libya and Nigeria, whose supplies have been reduced by domestic conflicts, are preparing to boost exports within weeks. The oil surplus will last longer than previously thought as demand growth slumps and output proves resilient, the International Energy Agency said Tuesday. Nickel fell by about 6 percent this week in London, its biggest loss of the year. Copper prices gained more than 3 percent, having got a boost in recent days from better-than-expected economic data in China, the biggest user of industrial metals. Soybeans in Chicago were down more than 3 percent for the week amid speculation that a record U.S. harvest will cap prices. Corn and wheat also lost ground on expectations for ample supply.

In the US all eyes will be on the August CPI report. Market expectations are for a +0.1% mom headline print and +0.2% mom core reading. Those numbers also match the views of our US economists and if true, it would have the effect of lifting the headline YoY rate to +1.0% from +0.8%, but keep the core at +2.2% yoy. The other data scheduled for release is the first take of the September University of Michigan consumer sentiment reading. The market consensus for this is for a modest increase in the headline sentiment reading to 90.6 from 89.8. Away from the data, the 27 leaders of the EU are holding a summit in Bratislava today to discuss Brexit so that might be worth keeping an eye on.

* * *

* * *

DB’s Jim Reid concludes the overnight wrap

We’ve stabilised over the last 48 hours. Last night the S&P 500 (+1.01%) saw its 4th more than 1% move in either direction in 5 days after the 43 days we’ve talked about at length without one. A strong 4-day 12% rally for Apple has helped and yesterday commodities were firm as gasoline (+5.05%) had its second best day since May, WTI Oil bounced back +0.76% after a -6% 2-day slump and copper futures hit their highest in four weeks after the stronger Chinese data earlier this week.

The welcome moves came despite a backdrop of some softer US data yesterday, led in particular by the latest retail sales numbers. Headlines sales were down -0.3% mom last month which was weaker than the market had pegged (-0.1% expected). Ex auto (-0.1% mom vs. +0.2% expected) and ex auto and gas (-0.1% mom vs. +0.3%) also missed heavily and it was difficult to find any pockets of strength at all amid the soft report. The control group component – which as a reminder goes into the GDP accounts – was also disappointing (-0.1% mom vs. +0.4% expected) while July data was also revised down one-tenth from an already disappointing monthly reading.

That data had the Atlanta Fed scampering to slash its Q3 GDP forecast to 3.0% from 3.3% last week. 10y Treasury yields initially dipped lower and struck an intraday low of 1.660%, while the USD also sold off however both quickly reversed. In fact the 10y yield got back as high as 1.734% and so swinging 7.5bps, before eventually closing unchanged around 1.691%. The Treasury curve did however steepen once again. The 5y30y spread was another 4bps wider yesterday, the 11th day in a row that the spread has widened and at 128bps that spread is now the widest it’s been since June 30th.

This morning in Asia it’s been relatively quiet with JGB’s little changed. The Nikkei (+0.39%) and Topix (+0.43%) are firmer however, following that lead from Wall Street last night. Staying with Japan, late last night the WSJ ran an article suggesting that BoJ members are split on the direction the Bank should next take. The article suggests that of the seven members on the nine member board, at least three are still in favour of the current policy of bond purchases and negative rates, however the others, while still in favour of easing, are less confident now that bond purchases are effective. There’s some suggestion amongst these members of bringing in flexibility to purchases, through perhaps targeting a range (¥70-90tn) rather than an outright commitment to ¥80tn of purchases. This faction are also concerned about the availability of bonds to buy, suggesting that the BoJ may be approaching the practical limit sometime next year and the BoJ should look for policy alternatives.

In one last mention of Japan for today, yesterday our Global Economic Perspectives team published their latest note, titled ‘The Bank of Japan Reassesses Policy’. They expect the BoJ to conclude next week that asset purchases has been successful in driving down funding costs and pushing growth and inflation higher. They also expect that the BoJ will conclude that the introduction of negative interest rates in January this year had a powerful complementary effect, but that exogenous shocks (declining oil, slower Chinese growth and weak US and European activity), a larger than expected decline in demand following the consumption tax increase, and strongly backward-looking inflation expectations are responsible for the failure to meet the 2% inflation target. As a result they believe that the most likely course of action for the BoJ is to leave policies unchanged. They do however also mention that it’s possible that we see the BoJ (even as soon as next week) reconfigure policy to gain more flexibility in terms of the pace and types of asset purchases. Such a measure would likely be accompanied by a rate cut.

Looking at the rest of Asia this morning with China and Hong Kong both closed unsurprisingly there’s not a huge amount to highlight but along with the gains in Japan, the ASX (+1.08%) is also having a reasonably strong morning. US equity index futures are little changed, while Oil has given up some of yesterday’s move higher.

In terms of the rest of markets yesterday, a late surge into the close helped European equities also generally finish with gains. The Stoxx 600 closed +0.57% which meant it finally brought to an end five days of consecutive losses (in which time it had lost -3%). The FTSE 100 (+0.85%) outperformed, boosted by losses for Sterling following the BoE decision to hold policy steady as expected, but clearly keeping the door open for a cut soon. The positive read-through from the BoE was clearly the upbeat commentary from the MPC about the post-Brexit data which has come in ‘slightly to the upside’ of their forecasts. While we’re on the UK, yesterday’s retail sales ex fuel data for August (-0.3% mom vs. -0.7% expected) was not quite as weak as expected, helping to support that view from the BoE.

Just recapping the remainder of that US data, also disappointing was the industrial production reading in August which missed to the downside (-0.4% mom vs. -0.2% expected) with capacity utilization dropping to 75.5% from 75.9%. The manufacturing data was a mixed bag. Empire manufacturing for this month did improve just over 2pts but not as much as hoped (-2 vs. -1 expected). Manufacturing production in August was softer than expected (-0.4% mom vs. -0.3% expected) however the Philly Fed manufacturing survey bounced an impressive 10.8pts to 12.8 (vs. 1.0 expected). On the inflation front headline PPI (0.0% mom vs. +0.1% expected) was unchanged last month, while the ex food and energy print (+0.1% mom) met expectations. Finally initial jobless claims (+1k to 260k) and business inventories (0.0% mom vs. +0.1% expected) were non events. The end result of all that was another leg lower for US economic surprise indices that we follow.

Looking at the day ahead, it’s a quiet session for data in Europe with just the final Q2 wages numbers in France due out. This afternoon in the US however all eyes will be on the August CPI report. Market expectations are for a +0.1% mom headline print and +0.2% mom core reading. Those numbers also match the views of our US economists and if true, it would have the effect of lifting the headline YoY rate to +1.0% from +0.8%, but keep the core at +2.2% yoy. The other data scheduled for release in the US this afternoon is the first take of the September University of Michigan consumer sentiment reading. The market consensus for this is for a modest increase in the headline sentiment reading to 90.6 from 89.8. Away from the data, the 27 leaders of the EU are holding a summit in Bratislava today to discuss Brexit so that might be worth keeping an eye on.

3a)NORTH KOREA:

none today

This is interesting.  The European and Japanese bankers are threatening to mutiny the new Basel III capital rules that was suppose to start on Sept 1 but these guys got a temporary reprieve.  Obviously they will have considerable trouble raising the necessary capital requirement

European, Japanese Bankers Threaten Mutiny Over Basel Committee’s Capital Rules

(courtesy zero hedge)

An extremely important commentary and video.  Spitznagel is one smart cookie and he warns that if the Fed ever hikes, the markets will go down very hard and probably 50%

(courtesy zero hedge)

(courtesy zero hedge)