Article / 08 July 2016 at 8:22 GMT

From the Floor: Slammed Deutsche Bank woes deepen

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  • Deutsche Bank subordinated CDS hits all-time high — Boye
  • Financial credit markets facing "lot of stress" — Boye
  • Periphery also coming under pressure as EC warns Spain, Italy
  • Nonfarm payrolls print could veer towards the upside — Hardy
  • Ex Fed chair Bernanke talks in Japan raise helicopter money prospect — Hardy
  • NFP print unlikely to move equities "even if it is strong" — Garnry
  • China stimulus could be the catalyst to reignite markets — Garnry
  • USDCAD could spike after oil plunges some 5% — Hardy


By Martin O'Rourke

Off the scale

Deutsche Bank's share price hit a 25-year low this week on the potent cocktail of the Brexit fallout and a banking sector crisis sweeping through Europe and that was extended to a fresh €11.22-low. To put that in context, the 52-week range for the giant of the German banking industry stands at €11.22-32.31. How the mighty have fallen.

That has been mirrored by the Deutsche Bank subordinated credit default swap which has careered its way past the Lehman's-collapse high of 2008 and even taken out the Eurozone 2011 crisis high.

"There is a lot of stress in the financial credits markets which is more than evidenced by what is going on at Deutsche Bank", says Michael Boye, from Saxo Bank's fixed income desk in Copenhagen. "The situation now is not even comparable with 2008 when it was a different regime when no-one thought that CDS debt could be loss absorbing".

"We know now that of course it could", he says. "We have elevated risk ever since but it shows the amount of risk being priced into specifically Deutsche but also across other financials in Europe more generally".

Deutsche subordinated CDS at an all-time highg

Source: Bloomberg

European peripheral bonds are also facing the strain too with both Spain and Italy warned by the European Commission over excessively high levels of debt. "The EC wants them to get their finances under control", says Boye.

The continuing crisis over the world's oldest bank, Monte Dei Paschi di Siena, is also overshadowing the market as it chases a debt restructure plan to pull it out of the mire.

"It is getting closer to a debt restructure but the question is who will be bearing the cost of the losses there", asks Boye. "If you think this will be a success, there is some opportunity there to be had at around 65 cents on the bond as the market is pricing in some sort of loss and writedown".

Monte dei Paschi di Siena bond slides to 65 cents

NFP ahead

It's nonfarm payrolls today and while it has often proved to be one of the most exciting events in the calendar, there is a sense of being rather underwhelmed after all the market-moving drama surrounding Britain's extraordinary decision to exit the European Union.

But, let's not be fooled. After last month's NFP shocker of just 38,000 added jobs, markets are looking for a rebound with something in the region of 180,000 on the cards. 

"Some strong data this week including the ISM could indicate that the NFP should be raising the bar to the upside", says John J Hardy, head of forex strategy at Saxo Bank. "That said, we probably need two months of very strong data before we see the Federal Reserve put interest-rate hikes back on the agenda again".

"I'd be very surprised to see a very bad reading today", says Hardy. "My expectations for an in-line or better-than-expected print".

A stronger-than-expected NFP could light a fire beneath USDCAD, says Hardy, after the latter got clattered by a 5-6% slide in oil prices overnight on the back of an unexpected rise in US inventories. 

"We're looking for a breakout from an ever tightening range in the pair and NFP could be the trigger", he says. The breakout needs to clear the 1.30-32 zone".

WTI crude was at $45.38/barrel at 0655 GMT.

USDCAD could be on the verge of a breakout
Source: SaxoTraderGO

It's a similar story for a mixed equities picture, says Peter Garnry, head of equities strategy at Saxo Bank. "Even if we get a very strong NFP, it is just one indicator out of many and we need to see some more data points from around the globe".

Garnry says equities are in need of a catalyst in the post-Brexit-vote environment and China could be the key to setting the market alight again.

"We need to watch where the leading indicators in China are going", says the equities chief. "With all the stimulus that they are building there, we have to see if it will pull out some growth and if it does, this should be positive for global markets".

It's a difficult time in the equities space, nevertheless, says Garnry with the banking sector crisis in Europe looming large. "The whole banking crisis is a major danger and we need a solution hopefully next week but you just never know with Brussels".

"There will be a lot of volatility in equities", he adds.

And finally...

Ex Fed chair Ben Bernanke will be in Tokyo next week for high-level talks with prime minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda. 

"It's tough to define any more sure sign that the BoE and Abe are looking for the next phase in their plan to bring back inflation to Japan and this is very likely to involve some sort of helicopter money attempt", says Hardy.

 Don't look down, look up — helicopter money might be coming Japan's way. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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