Monday morning traders seem to woke up to a storm for equity markets. Brexit came right to the fore again as Theresa May, after chastising Boris Johnson last week for attempting to wrestle the initiative over the Brexit timetable, reasserted her authority. The tension increased as Europe’s leaders appear to be starting their own game of hard ball. Mario Draghi on Monday reiterated that he believed the EU should take a hard line with negotiations. Angela Merkel has expressed similar views in recent speeches.
The other Brexit headline came from KPMG, after they published a survey that suggested 3 in 4 company chief executives are considering moving their headquarters, or part of their operations outside the UK post Brexit. A lot was made of this report, however one has to believe that company executives are looking at all options and preparing several scenarios as the Brexit impact is an unknown at this point.
Other stories that impacted equity market sentiment was the reports at the weekend with regard to the growth in the Tesco pension fund deficit. We have pointed out on more than one occasion the impact the measures Mark Carney has introduced has put further pressure on pension funds. Regulators are going to have to deal with this deficit problem, and give the actuaries different measures to value these pension funds.
European Markets were rocked by comments from German Ministers that they would not use tax payer’s money to bailout Deutsche Bank, should it need it. The fears for Deutsche Bank’s capital position have intensified after the Wall Street Journal reported that the Justice department intend to fine them $14bn to close out mortgage- securities probe. There may well be some commentators who draw similarities between the capital position of Deutsche Bank and the failure of Lehman.
One way to see if stress is entering the financial system is to study the interbank rates. This is the rate banks charge to lend to one another, otherwise known as Libor for UK banks or Euribor for European ones. During the financial crisis 3 month Libor rates moved as high as 5%, currently these rates remain close to zero, which would suggest at present the banking system remains liquid.
Blows were exchanged on the first of the three debates for the US election, but no knockout punches. Markets in the US stabalised post the debates, partly as Hilary was thought to have got a decision on points.