Week Ahead: Deutsche Bank And Europe To Drive Markets

| About: SPDR Dow (DIA)

Summary

Volatility to peak up.

Banking sector faces challenges.

Precious metals to gain on uncertainty.

EU summit to increase worries about southern Europe countries.

World Indices Return

Name

Return since Brexit

1 Week

1 Month

YTD

S&P 500

1.91%

-0.67%

-1.48%

5.37%

Dow Jones Industrial Average

1.27%

-0.37%

-1.54%

4.68%

FTSE 100

11.14%

2.10%

2.89%

12.85%

DAX

2.28%

-0.19%

-2.44%

-2.35%

CAC 40

-0.36%

0.04%

-2.36%

-4.04%

Athens Composite Index

-6.54%

2.08%

0.39%

-8.56%

IBEX 35

-2.94%

-1.77%

-4.34%

-9.64%

MIB

-8.69%

0.03%

-5.13%

-23.41%

NIKKEI 225

3.83%

2.49%

-0.90%

-11.42%

HANG SENG

14.30%

2.38%

0.46%

8.84%

Source: Yahoo Finance

Last week the markets were bombed by news regarding Deutsche Bank (NYSE:DB), the flash crash of British pound, which lost 6% in two minutes, and the debate of hard vs soft Brexit. In US, the non-farm payrolls miss estimates and stood at +156K (consensus +175K) and unemployment rose slightly to 5% (est. 4.9%) which may give Fed one more excuse to keep interest rates unchanged for longer than previously expected.

Stock Market Outlook

The US markets closed slightly lower than last week after the lower than expected economic data and the lower oil prices on Friday. We expect volatility to rise as economic data make it more difficult to predict the Fed's next move and the banking crisis which is developing in Europe could deteriorate investors' confidence.

This week's economic calendar

The economic calendar for next week includes FDI, CPI and trade balance data for China, Industrial Production, Economic Sentiment and Trade balance data in EU and retail sales Consumer Sentiment for US, crude oil inventories, the release of FOMC minutes and Yellen's speech.

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

DB

Deutsche Bank AG

-22.3%

4.5%

-6.6%

-46.3%

OTCPK:CRZBF

Commerzbank AG

-20.2%

-0.9%

-10.8%

-40.6%

RBS

Royal Bank of Scotland Group PLC

-27.4%

1.7%

-7.7%

-39.8%

LYG

Lloyds Banking Group PLC

-27.2%

-3.8%

-8.9%

-27.6%

BCS

Barclays PLC

-7.1%

3.5%

2.3%

-20.7%

CS

Credit Suisse Group AG

-0.1%

8.4%

0.7%

-40.2%

UBS

UBS Group AG

-11.0%

2.9%

-3.7%

-30.2%

OTCQX:BNPQF

BNP Paribas SA

3.4%

7.7%

5.0%

-5.6%

NMR

Nomura Holdings Inc

9.7%

5.2%

-1.7%

-30.9%

OTCPK:SCGLF

Societe Generale SA

-9.3%

6.8%

1.4%

-22.8%

HSBC

HSBC Holdings PLC

36.3%

7.1%

9.2%

15.5%

OTCPK:UNCFF

Unicredit SpA

-22.1%

2.4%

-8.8%

-58.7%

OTCPK:BMDPY

Banca Monte dei Paschi di Siena SpA

-68.7%

-8.7%

-27.9%

-86.2%

OTCPK:NBGIF

National Bank of Greece SA

-30.9%

3.3%

-4.0%

-44.6%

JPM

JPMorgan Chase & Co

6.3%

2.3%

1.4%

3.2%

C

Citigroup Inc

10.8%

4.3%

3.8%

-4.8%

BAC

Bank of America Corp

14.9%

3.1%

2.7%

-4.2%

GS

Goldman Sachs Group Inc

11.2%

5.3%

0.1%

-5.8%

MS

Morgan Stanley

18.4%

0.8%

2.0%

1.6%

Source: Yahoo Finance

Banks

Banks outperformed this week after the previous week's sell-off mainly due to rumors that Deutsche Bank will reach to an agreement with the DOJ on a lower fine that the initial $14 bilion. European banks still struggle to recover from the decline after the Brexit vote (mainly in Italy and Germany). As it has already been mentioned in my last article, the Banking sector in Europe faces many challenges. Monte dei Paschi di Siena, the third largest lender in Italy, was the worst performer in EBA'a stress test in July and has been lost 86% since the start of the year as recapitalization stalls. South European Banks have to deal with a high ratio of Non-performing loans (NPLs), high borrowing costs and low profitability. Portuguese Banks are also in a bad situation as the only rating agency that includes Portuguese Government bond rating in the investment grade bonds (EBDR) has warned that there is the possibility for the country's bonds to be downgrades despite the stable outlook previously given. For the economy this means that new austerity measures and a new crisis is possible if the country finds it difficult to borrow with low rates. The current bond yield for 10Y Gov bonds stands at 3.56% (compared with 2.6% earlier in Jan 2016 and 1.6% in Jan 2015). EBDR is the only rating agency that rates Portuguese debt as investment grade and the only reason the country is eligible for the ECB's bond buying program. If EBDR downgrades Portuguese bonds this automatically means that the country's banks will have to rely on the ECB's ELA which much more expensive. DBRS makes its next rating decision on October 21.

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

SPY

SPDR S&P 500 ETF Trust

2.0%

-0.6%

-1.8%

5.5%

DIA

SPDR Dow Jones Industrial Average ETF Trust

1.3%

-0.3%

-1.7%

4.7%

XLF

Financial Select Sector SPDR Fund

3.6%

1.7%

-1.5%

1.4%

XLU

Utilities Select Sector SPDR Fund

-6.4%

-3.8%

-6.1%

8.9%

VIX

Volatility Index

-21.9%

1.4%

12.9%

-26.0%

NULL

EURO STOXX 50 VOLATILITY

-47.0%

-3.6%

-0.3%

-13.4%

GLD

SPDR Gold Trust

-0.3%

-4.7%

-6.7%

18.0%

UUP

PowerShares DB US Dollar Index Bullish Fund

3.4%

1.1%

1.7%

-2.7%

FEZ

SPDR EURO STOXX 50 ETF

-3.5%

-0.4%

-3.4%

-5.2%

Source: Yahoo Finance

World ETF Performance

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

IWRD

iShares Core MSCI World UCITS ETF

1.73%

-1.08%

-1.79%

4.19%

SPY

SPDR S&P 500 ETF

2.01%

-0.58%

-1.81%

5.48%

DIA

SPDR Dow Jones Industrial Average ETF

1.34%

-0.31%

-1.67%

4.73%

EWG

iShares MSCI Germany ETF

0.15%

-0.72%

-2.65%

-0.42%

EWQ

iShares MSCI France ETF

-2.75%

-0.58%

-2.56%

-0.78%

EWU

iShares MSCI United Kingdom ETF

-6.04%

-1.83%

-3.60%

-3.66%

CSX5

iShares Core EURO STOXX 50 UCITS ETF

-0.88%

-0.08%

-2.76%

-5.18%

EWJ

iShares MSCI Japan ETF

5.24%

-0.72%

-1.11%

2.72%

AAXJ

iShares MSCI All Country Asia ex Japan ETF

10.35%

0.38%

-0.61%

13.74%

EEM

iShares MSCI Emerging Markets ETF

8.43%

0.64%

-1.05%

17.09%

MCHI

iShares MSCI China ETF

14.95%

0.99%

0.14%

9.77%

Source: Bloomberg

FTSE Weekly Winners/Lossers

Ticker

Name

Weekly Return

POLY

Polymetal International PLC

-11.67 %

EZJ

easyJet plc

-11.02 %

CPI

Capita PLC

-9.93 %

RRS

Randgold Resources Ltd

-9.12 %

IAG

International Consolidated Airlines Group SA

-8.53 %

UU

United Utilities Group PLC

-8.28 %

FRES

Fresnillo PLC

-8.21 %

DC

Dixons Carphone PLC

-7.44 %

SVT

Severn Trent PLC

-7.19 %

LAND

Land Securities Group PLC

-6.81 %

TSCO

Tesco PLC

9.98 %

RDSB

Royal Dutch Shell PLC

8.54 %

RDSA

Royal Dutch Shell PLC

8.07 %

BP

BP PLC

8.00 %

RR

Rolls-Royce Holdings PLC

7.71 %

STAN

Standard Chartered PLC

7.26 %

PSON

Pearson PLC

7.24 %

HSBA

HSBC Holdings PLC

7.05 %

ITRK

Intertek Group PLC

6.33 %

BRBY

Burberry Group PLC

6.16 %

Source: Bloomberg

S&P500 Weekly Winners/Lossers

Ticker

Name

Weekly Return

NEM

Newmont Mining Corp

-13.54 %

IRM

Iron Mountain Inc

-10.55 %

AES

AES Corp

-9.81 %

PPG

PPG Industries Inc

-9.32 %

TSN

Tyson Foods Inc

-9.27 %

AYI

Acuity Brands Inc

-9.02 %

AIV

Apartment Investment and Management Co

-8.60 %

O

Realty Income Corp

-8.17 %

HON

Honeywell International Inc

-7.75 %

CNC

Centene Corp

-7.53 %

GPS

Gap Inc

19.27 %

SIG

Signet Jewelers Ltd

7.43 %

NFLX

Netflix Inc

6.36 %

MET

Metlife Inc

6.28 %

URBN

Urban Outfitters Inc

6.05 %

LRCX

Lam Research Corp

5.96 %

NTRS

Northern Trust Corp

5.82 %

AMG

Affiliated Managers Group Inc

5.78 %

JWN

Nordstrom Inc

5.69 %

FTI

FMC Technologies Inc

5.56 %

Source: Bloomberg

Commodities Return

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

GLD

SPDR Gold Shares ETF

4.12%

-1.33%

-2.68%

23.26%

SLV

iShares Silver Trust ETF

8.31%

-1.38%

-4.39%

35.41%

USO

United States Oil Fund

-16.53%

-5.57%

-9.01%

-9.09%

UCO

ULTRA BLOOMBERG CRUDE OIL ETF

-33.23%

-11.18%

-18.77%

-30.30%

DBA

PowerShares DB Agriculture Fund

-8.01%

-0.05%

-2.26%

-1.36%

UNG

United States Natural Gas Fund

7.17%

5.60%

10.87%

0.00%

PPLT

ETFS Physical Platinum Shares ETF

5.14%

-4.55%

-9.10%

13.65%

DBP

PowerShares DB Precious Metals Fund

4.01%

-1.42%

-3.38%

24.89%

UGA

United States Gasoline Fund

-5.57%

7.48%

5.24%

-10.12%

Source: Bloomberg

Precious metals higher YTD mainly due to lower interest rates, stronger USD and uncertainty about Brexit. Gold seems overvalued when we look at physical demand, interest rates and inflation expectations. However, gold can continue trading at premium as the US presidential election and the Banking sector issues will provide tailwinds for the precious metal.

Commodities Return

Name

Return since Brexit

1 Week

1 Month

YTD

Gold Futures

-0.98%

-4.90%

-7.10%

17.79%

Silver Futures

-0.14%

-9.48%

-12.32%

25.76%

NYMEX Light Sweet Crude Oil WTI

-0.60%

3.25%

9.47%

34.48%

Brent Crude Spot

3.87%

2.57%

5.92%

32.72%

NYMEX Natural Gas Futures

18.35%

9.88%

19.32%

36.63%

Bloomberg Commodity Index

-3.06%

0.35%

2.04%

9.02%

COMEX High Grade Copper Futures

-0.32%

-2.07%

3.03%

1.46%

Platinum Spot

0.49%

-5.76%

-11.08%

8.32%

London Cocoa

1.44%

4.32%

1.67%

2.52%

Baltic Exchange: Baltic Dry Shipping Index

54.53%

5.26%

19.15%

94.71%

Source: Bloomberg

Oil has outperformed over the last two weeks after OPEC reached to an agreement to cut oil production, although the cut in production is small but this could help in a market that there is a notorious excessive demand. Oil lost some of the week's gains on Friday after rumors that non-OPEC countries may not agree to cut production; OPEC along with non-OPEC are meeting at the oil industry conference in Istanbul next week where they will discuss joining plans to curb oil output. We believe that some of the non-OPEC countries like Russia are wishing for such a deal as the country has been in trouble due to the low oil prices. The announcement of the OPEC deal alone led oil price a boost of 15%. Cutting production by 1-2% and being able to sell at a price which is higher by 15% (or more) should be very beneficial and we think that countries like Russia have been impatiently awaiting for this to happen.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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