Deutsche Bank (ETR:DBK) shares fell in early trade on Monday after reports that its CEO had failed to agree a deal with US Department of Justice to lower their $14 billion fine.
Chief executive John Cryan was in the US over the weekend for the autumn meetings of the International Monetary Fund and the World Bank, with many hoping he would agree a new figure for the bank’s fine with the US authorities whilst he was there. However, it has been reported that no new deal was made.
The bank was handed the fine back in September for its part in causing the 2008 financial crisis. It is the largest fine awarded so far, causing Deutsche Bank shares to drop dramatically since on worries that the bank will be unable to pay it.
The lender was the biggest faller on Germany’s main stock market in early trading but has since regained some ground, currently trading down 0.83 percent at 12.19 (1248GMT).
Michael Hewson, chief market analyst at CMC Markets, told the BBC: “Deutsche Bank hasn’t as yet been able to come to any agreement with the US Justice Department as it looks to overcome the hurdle of the prospect of a rather large fine.
“Talks are continuing while the bank looks at potentially spinning off a stake in its asset management division in order to free up some extra capital.”
Snapchat’s parent company is considering listing the company on the stock market, in an Initial Public Offering valuing the app at $25 billion.
This would be the largest share sale on the US stock exchange since 2014, when Chinese company Alibaba was first listed at a value of $168 million.
The app has quickly come to dominate the social media world, having been used by various high-profile celebrities and companies alike. Snapchat reportedly has over 150 million users, with 10 billion videos being viewed daily on the App. The company is projected to generate $366.7m in global advertising revenue, according to data.
The app was founded by Evan Spiegel, Bobby Murphy and Reggie Brown in 2011, and has steadily gained popularity. CEO and founder Evan Spiegel, who is reportedly worth $2.1 billion, recently renamed the company ‘Snap’ to reflect the expanding components of the business.
Spiegel rejected a previous bid from social media giant Facebook earlier last year, with Facebook going on to acquire photo-sharing platform Instagram instead. Instagram have been since criticised for recent updates to the App which allowed users to post public videos, in a similar fashion to Snapchat.
The company is preparing to float in March 2017, according to a report released by the Wall Street Journal. The IPO valuation of $25 billion is a significant increase on the May funding evaluation of $17.8 billion, after which Snapchat attracted various new investors. Among these was Sequoia Capital, a venture capital firm which has invested in several other tech businesses including YouTube, Google, Oracle and Yahoo.
In September, Snap Inc introduced plans to expand the business through the launch of Spectacles. Spectacles, are pitched as glasses that are able to record ten second clips which can then be sent to smartphone devices via Bluetooth. The glasses are expected to be released prior to Christmas and retail for $130 (£100).
If we assume that the financial markets operate under the principle of maximising returns at minimal risk, then it should surprise nobody that Hillary Clinton is Wall Street’s preferred candidate. However, this has less to do with ideology than the fact Mrs. Clinton is an establishment candidate whose pockets have been lined with Wall Street dough.
But what do the financial markets have to gain from a second Clinton in the White House?
Greater certainty
If there’s one thing the financial markets hate, it’s uncertainty. In an environment constantly pulled between fear and greed, uncertainty generally causes investors to navigate toward risk-aversion. This has all kinds of nasty side effects on the value of assets.
As we mentioned at the outset, Clinton is an establishment candidate who is less likely to rock the political boat. Wall Street knows the establishment type, and would much rather play ball with a candidate they know how to deal with.
No Donald Trump
In practical terms, a Hillary Clinton victory also means Donald Trump doesn’t make it to the White House. For Wall Street, who are predominantly in favour of a Clinton presidency, and the financial markets, this would be viewed as a very good thing. Do we need to take position on this?
Historically, markets love Democrats
Another cold hard fact about putting a Democrat in the White House is the market performs much better. Now, we’re not saying this is solely attributed to Democrats – after all, presidents spend a great deal of time dealing with the policies of past administrations. But if we look at average stock market returns under Democrats and Republicans, it’s no contest who the market prefers.
Since 1900, the Dow Jones Industrial Average has generated an average annual return of 7% under Democrats versus just 3% under Republicans. That’s a total of 19 presidents, so the sample size is fairly large.
But what about the downsides of a Clinton victory?
Pharmaceutical stocks
Clinton has made lowering prescription drug costs one of her biggest election issues, and has repeatedly lashed out at the absurd costs of prescription drugs. While this is certainly a noble effort, it has wreaked havoc on the healthcare sector in general and pharmaceutical industry in particular. One thing is clear: A Clinton presidency could be detrimental to pharmaceutical stocks. If you’re an investor, you may have to rethink your portfolio.
Let’s also not forget to mention that her plan for lowering drug costs has come under attack by the pharmaceutical industry. This could get ugly in a hurry.
Very hawkish
Hillary Clinton may become the first female president in US history, and although it may be easy to project the maternal stereotype on the 68-year old Clinton, she is widely considered to be a war hawk.
“Hillary the Hawk,” as she is sometimes called, has a woeful record when it comes to foreign policy. The Democratic hopeful voted in favour of the 2003 Iraq War, the 2009 Afghanistan surge, intervention in Libya to overthrow Muammar Gaddafi and arming rebels in their siege of Syria (the same rebels who would form part of ISIS) – and that’s only the tip of the iceberg. Another Clinton in the White House might not be good for the country’s finances.
Not a change agent
If there’s one thing Americans are craving, it’s change – serious change. And if significant change is what you’re looking for, Hillary is probably the wrong candidate. For investors, a lack of change probably equates to stability for a short while, until voters demand somebody much more radical. Another four years of status quo policies, doing Wall Street’s dirty work and preparing for a cushy retirement earning $250,000 for 20 minute talks could create a new appetite for change. Who knows what types of candidates that might produce in 2020 – but we have a sneaking suspicion that they could make Donald Trump and Bernie Sanders look like one of the guys.
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The US created 156,000 jobs in September, according to the latest non farm payroll figures released by the Labor Department on Friday.
The figure was slightly weaker than the 170,000 expected by analysts, and below last months revised figure of 167,000. Unemployment rose marginally to 5 percent.
These figures will be watched closely by those looking to ascertain whether a December rate rise is on the horizon. Given the slightly disappointing rise in unemployment and lower than expected jobs creation, it may cast doubt on the suitability of a Fed decision to raise rates before the end of the year.
The USD is trading up 0.38 percent.
House prices rose at a slower rate than expected in September, according to the latest data from mortgage lender Halifax.
Prices slowed from 6.9 percent in the three months to August to just 5.8 percent in the three to September, their slowest rate in over three years. The property market has so far remained largely unaffected by the Brexit vote, however the latest figures may be evidence that negative investor sentiment is beginning to bite.
Martin Ellis, Halifax housing economist, said in a statement:.
“The reduction in annual house price growth from a peak of 10.0 percent in March to 5.8 percent six months later remains in line with our forecast at the end of 2015.
“A lengthy period where house prices have risen more rapidly than earnings has put pressure on affordability, therefore constraining demand. Very low mortgage rates and a shortage of properties available for sale should, however, help support price levels over the coming months,” he said.
In monthly terms, prices saw their first increase since June. However Ellis cautioned that quarterly figures were the the more reliable indicator, which saw house prices 0.1% lower lower than they were between April and June.
Automated sell-offs in Asia caused a “flash crash” on sterling in early trade, pushing the currency down around 10 percent.
Sterling dived from levels around $1.2600 to $1.1378, but has since recovered ground. The crash was triggered by a statement by French President Francois Hollande in the Financial Times, vocalising his desire to stay firm with Britain as Brexit negotiations begin.
“Of course, some in the market may see sterling’s overnight volatility to be the result of French President Hollande demanding tough Brexit negotiations,” Hans Redeker, head of currency strategy at Morgan Stanley, told Reuters.
“The new British government under May appears to have chosen an economic course which could bear substantial risks.”
The pound has been consistently weak since the UK voted to Leave the European Union, trading at its lowest level since 1985 earlier in the week after Theresa May pledged to prioritise immigration over the single market as Brexit negotiations begin.
The pound is currently trading at $1.23 to the dollar, down 0.21 percent.
The dollar rose on Wednesday ahead of Friday’s key US jobs data, as speculation that the Fed will raise rates later this year increases.
The dollar hit a four-week high against the yen, pushing sterling down to a three-year low.
“By and large the dollar is continuing to trade well,” Societe Generale strategist Alvin Tan told Reuters.
“Expectations about the Fed raising rates are edging up and that has been helped by the good run of U.S. data … The big one though is tomorrow with the non-farm payrolls report.”
Friday’s US non-farm payroll figures will be closely watched by the markets, with investors looking for signs that the labour market is strong enough for the Fed to raise rates in December. The median forecast of economists polled by Reuters is for payrolls to rise by 175,000.
However gold, which has been seen as a safe haven of late, sank on the news. The price dropped to three and a half month low as the threat of tighter monetary policy started to bite.
Oil remains steady
Oil prices hovered around their four month high after a surprisingly large drop in US inventory levels sustained investor confidence in the market.
“Optimism on the OPEC deal and surprising storage declines pushed oil prices to the upper end of the recent trading range. Both trends are temporary and unlikely to mark the easing of the oil supply glut,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.
US data released on Wednesday showed a stockpile decrease of 3 million barrels last week, taking the total to 499.74 million barrels. This went against the general expectation for an increase. However, inventories remain at near record highs and a rally in the markets may be hard to sustain.
Oil markets rose again last week after Saudi Arabia and Iran agreed to negotiate an OPEC-led curb on oil output.
TalkTalk have been penalised with a £400K fine after a mass cyber attack last October led to the release of sensitive customer data.
Poor security measures at the firm allowed hackers to access the personal details of 150,000 customers, including the sensitive financial data of more than 15,000 individuals. The Information Commissioner’s Office (ICO) fined TalkTalk and said the attack “could have been prevented if TalkTalk had taken basic steps to protect customers’ information”.
The hackers that targeted the TalkTalk database used a well-known cyber attacking technique known SQL injection. “SQL injection is well understood, defences exist and TalkTalk ought to have known it posed a risk to its data,” the ICO stated.
“On top of that the company also had two early warnings that it was unaware of. The first was a successful SQL injection attack on 17 July 2015 that exploited the same vulnerability in the webpages. A second attack was launched between 2 and 3 September 2015.”
The bug, which could have been prevented had the proper security provisions been in place, allowed hackers to easily obtain customers’ information. Despite defences made by TalkTalk representatives, ICO have concluded that the internet provider should have been more thorough in implementing proper security systems.
TalkTalk experienced two similar cyber attacks earlier that year which should have served as a warning and provoked improvements to its software and data storage systems, ICO has maintained.
ICO commissioner Elizabeth Denham commented:
“In spite of its expertise and resources, when it came to the basic principles of cyber-security, TalkTalk was found wanting.”
“Today’s record fine acts as a warning to others that cyber security is not an IT issue, it is a boardroom issue.
“Companies must be diligent and vigilant. They must do this not only because they have a duty under law, but because they have a duty to their customers.”, said Ms. Denham.
The fine is the largest issued fine in the history of the ICO, which has the authority to issue fines up to £500,000.
Shares in British supermarket Tesco (LON:TSCO) climbed over 13 percent on Wednesday, following a strong set first half results.
The figures are the third consecutive quarter of growth for Tesco, the latest sign that chief executive David Lewis’ turnaround plan may be having an effect. Lewis, the former chairman of Unilever, has introduced a series of initiatives since his appointment to help revitalise the supermarket and increase its competitiveness in a tough market. Lower prices and improved customer service have contributed to a markedly stronger performance of late.
Sales rose 3.3 percent to £24.4 billion in the first half of the year, despite a 28 percent fall in pre-tax profit to £71 million. This has been attributed to £81 million of atypical costs, including redundancy payments and redress payouts at Tesco Bank.
In a statement, Lewis said: “The entire Tesco team is focused on serving shoppers a little better every day. Prices are more than 6pc lower than two years ago, availability and service have never been better and our range is more compelling.”
Tesco reiterated its full-year profit guidance of £1.2 billion as well as setting out further targets, the increase of operating margins from 2.18 percent to between 3.5pc to 4pc by the end financial year of 2019/20.
This is an encouraging development for Tesco, which continues to show marked recovery from an accounting scandal 2011 and public backlash following the mislabelled sale of horse meat in 2013. The supermarket sector has been troubled in recent years, with budget supermarkets Lidl and Aldi continuing to take market share from the ‘Big Four’ British supermarkets.
A ‘Hard Brexit’ may cost the finance industry around £38 billion and up to 7500 jobs, according to a report released today by lobbying group TheCityUK.
Should the UK leave the single market and pursue a ‘Hard Brexit’ there could be serious implications for the security of the financial sector, the report concluded. It envisaged several possible scenarios for the UK following Brexit, one of which included the UK retaining some degree of access to the European Economic Area (EEA) and allowed the UK to continue to trade with other countries without the need for specific licenses. This was seen as the least disruptive approach, projected to cost the financial sector around 4,000 jobs and £2 billion in annual revenue.
An alternative option discussed was the UK would leaving the EU trading bloc “without any trading equivalence”, which is likely to have further negative consequences for the industry. The report indicated that such a move would cost the financial sector £20 billion and hit 35,000 jobs. Such a development may have a domino effect on other related business industries, potentially affecting 40,000 jobs and costing a further £18 billion.
The report was conducted by management consultancy firm Oliver Wyman for TheCityUK, an organisation seeking to influence government policy on issues that affect The City.
Hector Sants, head of Oliver Wyman and former chief executive of the Financial Services Authority, told the BBC: “We are not taking a view on the outcome of the negotiations.
“What we have done here is to create a robust and independent database.”
“We are confident that these are numbers that people can coalesce around and discuss.”
The report follows Theresa May’s Conservative Conference speech, in which she rejected distinctions between a “Hard Brexit” and a “Soft Brexit”. Following this announcement, the pound sterling has plunged to its lowest level since 1985 as the markets reacted to the latest Brexit development.
