London - Big losses for Germany’s biggest bank meant European markets started the week on a sour note yesterday as slightly better-than-expected Chinese data failed to dispel a general air of caution.
Deutsche Bank reported a surprise pretax loss of e1.15 billion (R17bn) for the fourth quarter of last year due to heavy costs for litigation, restructuring and balance-sheet reduction.
The bank was originally scheduled to report its results on January 29, but opted to release them early after the Wall Street Journal reported on Friday that a profit warning was possible.
Its shares opened down more than 5 percent, dragging down bank stocks across the region as Germany’s Dax, down 0.3 percent, also led the region’s list of losing bourses. Liquidity was lacking with US markets closed yesterday for a holiday. The Dow Jones industrial average ended last week with a slim gain of 0.1 percent, while the Standard & Poor’s 500 index lost 0.2 percent for the week.
In Asia, a majority of share markets in the region had stayed in the red last week, with Tokyo off 0.5 percent, Sydney 0.3 percent and Shanghai 0.5 percent, adding to a miserable few weeks.
China’s annual economic growth slowed a tick to 7.7 percent last quarter, which was just ahead of market forecasts for 7.6 percent and at least countered fears that monetary tightening might have caused a sharper pullback.
“The economy may be a little more robust than people thought coming into 2014,” said Tim Condon, an economist at ING Group.
“I had thought the monetary tightening in 2013 would pose a downside risk. The numbers reduce that downside risk.”
Other data out of China were much in line with forecasts, with retail sales growing 13.6 percent last month from a year earlier, while industrial output rose 9.7 percent.
That resilience was considered a positive for Australia, given that China is its single biggest export market.
The yen was in favour again yesterday as the general mood of risk aversion led speculators to cut back on short positions, which has been a very popular trade for months now.
The Bank of Japan holds its policy meeting today and tomorrow and is expected to maintain its massive asset-buying programme.
The euro was particularly affected, dropping to a six-week low at one stage against both the dollar and the yen.
A sovereign rating upgrade for euro zone bailout poster child Ireland helped ensure the recent rally in periphery debt rumbled on in debt markets, though Deutsche Bank’s troubles darkened the mood.
The unexpected loss is likely to compound the problems that have dogged the bank over the past year, especially a lengthening list of lawsuits and regulatory matters, and to redouble pressure on joint chief executives Anshu Jain and Juergen Fitschen to prove that their turnaround plan for the company is on track.
The EU’s quarterly earnings season shifts up a gear this week. Stoxx Europe 600 firms are seen missing consensus by 0.4 percent on revenues and by 0.9 percent on earnings, according to StarMine SmartEstimates, which focuses on the predictions by the most accurate analysts.
Among emerging markets, the Turkish lira touched a new record low yesterday as a corruption scandal and fading hopes for a policy reaction from the central bank to support the battered currency weighed on markets.
Société Générale strategist Kit Juckes said markets remained nervous about the impact on under-pressure developing nations as the US Federal Reserve scaled back its stimulus this year, adding with reference to Turkey “trouble continues at mill”. In commodities, spot gold made an early push to a five-week peak of $1 259.46 (R13 631) an ounce. – Reuters