Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

UK 100 Index called to open -70pts at 6850 after another failed attempt to conquer September highs yesterday was followed by a sharp overnight sell-off that takes it back towards post-Brexit rising lows support at 6840. The Bulls will be looking for this level to hold up to keep the recovery party alive. The Bears, however, will be crossing their fingers for a breach that allows for a retrace to September 6640 lows. Updated watch levels: Bullish 6870, Bearish 6815.

A negative start is the result of an intensification of worries about Deutsche Bank and whether major hedge fund clients are shying away from exposure to the German institution. Its US-listed shares close almost 7% lower last night. This only adds to already dampened risk appetite as investors come to realise what an OPEC ‘deal’ actually means.

Asian equities are weak, echoing a poor stateside performance, with Japan underperforming as Oil prices come off another spike higher to the detriment of Energy names and financials across the region suffer from sector risk perception linked to Deutsche. Note mixed Japan data (deflation worse, industrial production up) also hindering sentiment, although Australia’s ASX is outperforming thanks to better data both domestically (home sales, borrowing) and from solid manufacturing PMI from its biggest trade partner China.

US equities suffered overnight as markets participated in a Deutsche Bank-induced sell-off. With the excitement of OPEC’s surprise production curb agreement wearing off, markets closed around 1% lower in reaction to hedge fund capital withdrawals from the German financial, reigniting investor concerns of DBK’s stability.

The steam provided by OPEC’s Wednesday evening production reduction agreement looks to have faltered, as crude oil prices will look to consolidate the resultant gains from the surprise announcement. Falling from around September highs, Brent crude will look to stay above $48.50 per barrel and US crude above $47.00 as a weakening US Dollar begins to put downward pressure on the market.

Gold is one of the beneficiaries of the increased uncertainty surrounding Deutsche Bank, with price rallying during US trading hours, eventually stalling due to a weakening US Dollar. Although still in a technical downtrend, further news of a worsening position of the German giant is likely to send gold towards resistance at $1340, with the potential for a breakout should markets predict a worsening of DBK’s position.

The focus today, now that OPEC is behind us, will be the apparent woes of Deutsche Bank and inevitable contagion fears to European peers following a weak session for banks in the US and Asia overnight. Watch where the UK high-street four open this morning. Could DBK really need a bailout? Is a dilutive rights-issue imminent? Are hedge fund clients actually shying away?

Data-wise, the final read for UK Q2 GDP is seen confirming growth at 0.6% in the quarter and a healthy 2.2% over the year, the latter continuing its rebound from 1.8% in Q4, the slowest since Q3 2013. No surprise to see Services growth slowing in July in reaction to late June’s Brexit vote.

Eurozone Consumer Price Inflation (CPI) is expected to have accelerated in September, perhaps even more than consensus after an upside surprise from Germany yesterday. That will please ECB President Draghi, as will a downtick in regional unemployment.

In the afternoon, US Personal Income and Spending are seen slower in August, which would only echo yesterday’s weaker than expected Personal Consumption Expenditure. Inflation components are, however, forecast solid ahead of flat reads for Chicago PMI and Michigan Consumer Sentiment.  

Note the Fed’s Kaplan speaking after the European close at the same time as the latest US Baker Hughes Rig Count giving us the latest on whether stateside Oil production activity is on the up or not?.
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UK Company Headlines: (Source: Reuters/DJ Newswires)

• RBS unveils sweeping new structure as ring–fencing looms
• IG Group to buy news, research website DailyFX from FXCM Inc for $40m
• UK house prices rise more slowly in September – Nationwide
• Fiera capital makes offer to buy Charlemagne Capital Ltd
• Premier Foods chairman David Beever to step down
• Entertainment One sees full – year in line with expectations
• Airbus Group to merge with planemaking unit
• Tullow insurers agree firm can claim over Jubilee field issue
• John Lewis says Andy Street to step down as dept stores MD on Oct 28
• QinetiQ signs £109m contract extension for Royal Navy work
• Det norske: BP transaction to be completed on Sept 30
• Oil prices down on profit–taking after two–day jump