Fears over the financial health of Deutsche Bank flustered investors at the start of the week. But signs that energy prices might be rising from their slumber provided some solace, resulting in a positive week for the energy-heavy FTSE 100 Index. It rose by 0.1%, while the S&P 500 Index was down by 0.6% and the FTSE Europe (ex-UK) finished 1.2% lower.
Shares in Deutsche Bank collapsed to a 33-year low after the U.S. Department of Justice announced it was seeking $14 billion in damages for allegedly misleading investors about the quality of certain mortgage-backed securities, an act that helped spark the 2008 financial crisis. There were initial worries that the German financial behemoth might be forced to seek state aid if it acceded to the U.S. demands.
Deutsche’s troubles dragged down the whole European banking sector, which was already struggling with negative interest rates and falling profits. The industry’s travails recently prompted European Central Bank President Mario Draghi to proclaim that Europe “just has too many banks.”
Yields Finnish in negative territory
Investors piled out of equities and embarked on a flight to safety. The destination was a familiar one: government bonds. A large portion of the European government-bond market already trades on negative yields, meaning an investor that holds a bond to maturity is guaranteed to make a loss. Such is the demand for government bonds that Finland became the first country in Europe with a credit rating of lower than AAA on its 10-year debt to move into negative territory. Meanwhile, strong demand pushed prices of Spanish bond prices higher, causing the yield on 10-year Spanish government debt to fall to an all-time low of 0.88%.
Intrigue in Algiers?
Members of the Organization of the Petroleum Exporting Countries (OPEC) sprung a surprise on global energy markets by announcing their intention to cut oil production. Oil prices have plummeted over the last couple of years as the world’s major producers flooded the market. In particular, Iran has failed to heed calls to curtail production as its oil industry gets back on its feet following years of sanctions.
But following a meeting at the recent International Energy Forum in Algiers, OPEC countries said they intend to cut production by up to 750,000 barrels per day with the intention of stabilizing prices.
Shares in Shell and BP were among the main beneficiaries, climbing by around 5%, which provided a boost to the UK stock market. Rising oil prices are particularly beneficial for indices such as the FTSE 100, which contain a relatively high proportion of oil and energy companies. There appears to be some skepticism about the deal, however, as the price of Brent crude oil failed to rise above $50 per barrel.
In the UK, police have been investigating after a couple in Kent awoke to find 127 hedges missing from their front garden. Peter and Julie Vine (real names) had planted the trees to block out noise from the nearby A227 road and to help keep the property privet…er, private. This follows a similar crime down the road in Sussex a few weeks earlier, indicating that the thieves’ shear impudence is generating some serious hedge funds. Police are still trying to root out the green-fingered felons. Perhaps it’s time to call in a special branch of law enforcement?