RECAP: for the week ending September 30th

October 2, 2016

stocks were volatile this week, opening with a dip on Monday. Most sentiment was weighed on by the news surrounding Deutsche bank and concerns that the UK will continue to move forward with it’s plan to leave the EU. U.S. political uncertainty weighed on the market as investors awaited the first presidential debate on Monday evening. A general sentiment that Donald Trump did not advance his controversial trade agenda seemed to provide a boost to risk-sensitive segments of the market on Tuesday. Oil stocks also provided the market a boost following news on Wednesday that OPEC had agreed to cut output starting in November for the first time since 2008. Stocks fell back on Thursday as worries intensified about Deutsche Bank, and U.S. bank stocks swooned following Congress’s tough questioning of the chief executive of Wells Fargo. The banking giant continues to wrestle with the fallout over revelations that employees had been pressured to open unauthorized new customer accounts, and its troubles deepened as California suspended its use of Wells Fargo’s investment banking unit in state bond sales for at least one year.

In Europe most major European indexes ended the week lower, as financial stocks led equities along a downward slump on Friday. Energy stocks experienced a brief bump earlier in the week, after news of OPEC’s agreement to curtail oil supply. Concerns over Germany’s biggest lender, Deutsche Bank, drove the market this week as investors feared that the  proposed $14 billion fine from the U.S. Department of Justice would weaken the lender.  The turbulence benefited German government bonds, where demand for safe-haven bonds fueled a rally. The yield on the 10-year German government note fell to -0.16% Friday, not far from its record low of -0.19% hit in July. Late on Friday, banking stocks started to recover some of the losses resulting from the possibility that Deutsche Bank’s proposed fine could be significantly reduced.

In Asia the Nikkei 225 fell 304 points (1.8%) and closed at 16,449.84, down about 13% year to date. Global index provider FTSE Russell said it would not add China A shares to its widely used global benchmarks due to the Chinese government’s lack of transparency and heavy influence in the country’s financial markets. The announcement by FTSE Russell, a unit of the London Stock Exchange Group, deals the latest blow to China’s efforts to win over foreign investors and increase its sway in global financial markets. Despite China’s progress in opening its A share market to foreign investors, “our market consultations show continuing concerns around restrictive capital controls, high levels of stock suspensions, and market interventions,” the index company said in a statement.

Other large news from the Indian subcontinent weighed heavily on financial markets there: India conducted military strikes against what it called terrorist camps in Pakistan, reigniting long-simmering tensions between the two countries about control of Kashmir. In response, Indian stocks fell almost 2% on Thursday and yields on Indian bonds increased sharply. India’s currency, the rupee, experienced its largest drop in almost three months.

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