European stock markets are suffering a nervous Monday.
Point of view
Banks are still in bad shapeMirabaud Securities
Investors sold off energy companies’ shares ahead of an informal meeting of OPEC producers in Algeria.
There are no signs Saudi Arabia and Iran are making any progress towards an agreement to freeze production to start the process of pushing up oil prices.
Royal Dutch Shell, Tullow Oil and BP all fell in London.
Crude prices rallied in volatile trading, with Brent crude up four percent.
Banks are the other major worry. Britain’s Lloyds fell further after analysts at Goldman Sachs talked down its prospects. They cut the rating for the stock to “sell” from “neutral”, saying Lloyds faced incremental competition from HSBC.
Deutsche Bank blues
But in the banking sector it is Deutsche Bank that continued to be the biggest problem. Its shares slumped by 7.5 percent, hitting a record low. The price is down 90 percent since 2007.
That followed a report that the German government has ruled out any state assistance for the lender.
The fall of Deutsche Bank in one chart. Shares hit fresh low below 11€ on capital concerns. pic.twitter.com/kS9bLDKXeU— Holger Zschaepitz (@Schuldensuehner) September 26, 2016
It is currently trying to negotiate down a huge – $14 billion – US justice department fine over claims that it mis-sold mortgage-backed securities before the financial crisis. Even if the payout is substantially less than that, Deutsche Bank might have to sell more shares to raise its capital reserves.
Steffen Seibert, a spokesman for Chancellor Angela Merkel, said on Monday: “There is no reason for such speculation as presented there and the federal government doesn’t engage in such speculation.”
He spoke during a regular government news conference.
“Banks are still in bad shape,” said Rupert Baker, a European equity sales executive at Mirabaud Securities.
Baker expected European stock markets to make little progress until the outcome of November’s US Presidential election. Democrat candidate Hillary Clinton and Republican rival Donald Trump are due to square off in their first televised debate on Monday evening – US time.
“We’re not really going to go anywhere on European markets until the November election,” Baker said.
The pan-European STOXX 600 index is down by around seven percent since the start of 2016.
Turkey not delighted with Moody’s
Turkish stocks, bonds and the lira sold off on Monday after ratings agency Moody’s slashed its credit rating to junk.
Announcing the downgrade late on Friday, Moody’s cited worries about the rule of law after a failed coup, as well as risks from a slowing economy The move could push up Turkey’s cost of borrowing.
In response Turkey’s main government spokesman lashed out at Moody’s saying the decision was political and a “treasonous” attempt to undermined its economy.
Deputy Prime Minister Numan Kurtulmus also told a news conference on Monday that Turkey’s economic policy remained on track.
Kurtulmus, who was speaking to reporters after a cabinet meeting, said good management of the Turkish economy following the abortive coup of July 15 had offset risks and that macroeconomic indicators since have been stable.