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Deutsche Bank kicks-off European Banking Season - EMEA Brief 24 Oct

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  • Deutsche Bank has kicked off the banking season in Europe today as the bank announced a net profit of €229 million, with analysts expecting a profit of €149 million, as the investment bank branch loses ground. Barclays has followed by beating expectations as net income came in at £1 billion vs. £723 million expected, Jes Staley announced he is "very pleased" with the Q3 results.
  • The EU continues to mount pressure on the Italian government as Valdis Domborvskis, vice-president of the European Commission, has told Italy that it’s budget is “not sufficient” highlighting issues with further increasing debt in Italy.
  • The Dow ended 126 points lower but recovered from the earlier 500-point loss during the day, as corporate results from Caterpillar and 3M disappointed. Nasdaq closed 0.4% lower whilst the S&P 500 slipped 0.6%
  • Japanese manufacturing expanded to its fastest rate in six months In October a preliminary survey indicates PMI rising to 53.1, up from 52.5 in September.
  • China's Shanghai Composite slipped 2.3% on Tuesday, counteracting the surge seen on Monday. China is in a state of doing  "whatever it takes" to put an end to its stock market falling, as President Xi Jinping pledges to provide unwavering support for the Chinese private sector.
  • Oil prices plunged more than 4% yesterday amid concerns amongst investors about increasing global tensions with Saudi Arabia and slowing global economic growth. Saudi Arabia's minister of energy has attempted to assure the markets that the Khashoggi scandal will not impact the supply of crude oil, with little success so far.

Asian overnight: Asian stocks managed to arrest their recent slide, with markets throughout China, Japan and Hong Kong gaining ground overnight. The one outlier to this recovery came from the Australian ASX 200, which lost ground thanks to a sharp decline in the energy sector. With Saudi Arabia promising to keep the oil market well supplied, we saw a sharp decline in crude prices throughout the night despite an attempted rebound. Recent fears over the trade war impact on the Chinese economy have clearly shook stocks in Asia, and with the Italy-EU standoff looking set to rumble on, a risk-off sentiment is likely to stick around for some time yet. 

UK, US and Europe: The US stock market is still in a sell-off state as the S&P 500 recorded its fifth straight decline, with all other major indices down at least 4.8% for the month of October. The driving force for the sell-off is the on-going trade tensions with China, which do not seem to be easing as Chinese government leaders indicate that they are not scared of a trade war with the US. Adding to this, Donald Trump continues his assault on the American central bank, when speaking to the Wall Street Journal he claimed that the Fed is the "biggest threat to the US economy", adding further scepticism around the US stock market. Trump's relationship with the Fed and China-US relations will be intriguing to follow over the coming days and how both factors impact trader sentiment in the US market.

Looking ahead, we have a host of PMI releases from both Europe and the US. Preliminary eurozone PMI for France, Germany and the eurozone cover both services and manufacturing sectors, while the afternoon sees those same sectors covered by Markit for the US. The big release of the day comes from Canada, where the BoC is expected to raise rates once more. Keep an eye out for CAD volatility. 

Economic calendar - key events and forecast (times in BST)

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Source: Daily FX Economic Calendar

8.15am – 9am – French, German, eurozone mfg & services PMI (October, flash): eurozone mfg reading to rise to 54.4 and services to rise to 55.1. Market to watch: EUR crosses

2.45pm – US mfg services & mfg PMI (October, flash): mfg index to hold at 55.6, while services rises to 53.9. Markets to watch: US indices, USD crosses

3pm – Bank of Canada decision: rates expected to rise to 1.75% from 1.5%. Market to watch: CAD crosses

3pm – US new home sales (September): expected to rise 0.5% MoM. Market to watch: USD crosses

3.30pm – US EIA crude inventories (w/e 19 October): stockpiles to rise by 1.9 million barrels from 6.49 million a week earlier. Markets to watch: Brent, WTI

Corporate News, Upgrades and Downgrades

  • Barclays said Q3 profit fell to £3.12 billion from £3.45 billion, although excluding litigation and conduct charges group pre-tax profit was up 23% to £5.3 billion.  
  • Wells Fargo has been hit with a $65 million fine related into an investigation into statements made to investors regarding alleged fraudulent claims to "cross-sell" its business model.
  • Caterpillar's disappointing results saw the stock closed 7.6% lower as the company highlights issues with increasing costs due to global trade conditions.
  • Deutsche Bank report net profit of €229 million, a 65% fall in profits, in the third quarter amid the restructuring of the companies leadership. Analysts expected a sharper decrease than reported, a Reuters poll expected a net profit of €149 million. 
  • Another bank that has reported earnings today is Metro Bank, the company announced pre-tax profits of £39.2 million which is three times than the amount recorded in the same period of the previous year.
  • Stobart saw a net loss of £17.5 million for the first half, compared to a profit of £111.9 million a year earlier. Revenue was up 21% to £151.3 million, while the dividend was raised 20% to 9p per share. 
  • Beer company Heineken has revealed impressive sales as volume grew by 9.2% and net profit increased to €1.606 million, fueled by warm weather in Europe.
  • Shares in 3M slipped as much as 8.4% before recovering and trading at about 3.3% lower than its open, due to quarterly revenue missing expectations and adjusting its earnings perspective for 2018.

Banco BPM upgraded to hold at Kepler Cheuvreux
Datagroup upgraded to hold at Baader Helvea
Salvatore Ferragamo raised to neutral at MainFirst
Wartsila upgraded to buy at ABG

Baader Bank downgraded to hold at HSBC
Bayer downgraded to add at AlphaValue
Cineworld downgraded to equal-weight at Barclays
GAM Holding downgraded to neutral at MainFirst

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