Hope for local market after Deutsche’s deal

Australian financial markets will be in a better mood when trading resumes after a bounce in Deutsche Bank shares.

Overnight SPI 200 futures rose 0.6 per cent to 5446 points

Australian financial markets will be in a slightly more constructive mood when trading resumes today after a sharp bounce in Deutsche Bank shares buoyed global markets, though the German lender’s tribulations continued over the weekend with a fresh legal challenge from an Italian court.

NSW, South Australia and the ACT will remain closed for Labour Day.

Deutsche Bank surged 14 per cent to €11.67 in European trading — its biggest rise in six months — after Agence France Presse said the lender was nearing a $US5.4 billion ($7bn) settlement with the US Department of Justice in regard to mortgage-backed securities, less than half the amount initially requested.

The swift recovery in Deutsche Bank sparked a 0.9 per cent rise in the Dow Jones Industrial Average. The flagship S&P 500 index rose 0.8 per cent while the Nasdaq 100 also gained 0.8 per cent.

“The deal has yet to be confirmed but while idle speculation on my part, I can’t but wonder if the phone call between President Obama and German Chancellor Merkel on Thursday night, ostensibly about Russia, also touched on the need to achieve a rapid resolution of the dispute in order to head off the risk of another Lehman — or at least Bear Stearns — moment,” said Ray Attrill, global co-head of FX Strategy at National Australia Bank.

A FOX poll putting Democrat presidential nominee Hillary Clinton five points above Republican rival Donald Trump before the November 8 election also helped market sentiment, NAB’s Attrill added.

Volatility in S&P 500 futures fell to 13.29 per cent after hitting a one-week high of 15.7 per cent.

Benchmark US 10-year Treasury bond yields rose 3.5 basis points to 1.59 per cent, while spot gold fell 0.3 per cent to a one-week low of $US1315.87 as demand for safe havens abated.

Elsewhere in commodity markets, WTI crude oil rose 0.9 per cent to $48.24 a barrel and the LME metals index rose 0.6 per cent, although spot iron ore fell 1.6 per cent to $US55.86 a tonne. Following a 0.7 per cent fall in Australia’s S&P/ASX 200 share index, overnight SPI 200 futures rose 0.6 per cent to 5446 points. The Australian dollar bounced to US76.64c after hitting a seven-day low.

In Australia, the Reserve Bank meets to discuss monetary policy tomorrow, but the market-implied chance of an interest rate cut is only about 6 per cent. The central bank has made it clear that it’s awaiting September-quarter inflation data on October 26 before deciding whether to cut again.

In what may be a fresh blow to market sentiment, Deutsche Bank was hit by another legal challenge on Saturday. An Italian court charged the embattled German lender, an employee and five former executives with colluding with Banca Monte dei Paschi di Siena to falsify the Italian lender’s accounts in 2008.

Michele Faissola, who oversaw global interest rates at the time, and Ivor Dunbar, former co-head of global capital markets, were among those indicted in a Milan court. Both were top deputies to former Deutsche Bank co-chief executive Ansho Jain and both have left the company.

Bloomberg says the charges follow a three-year probe that, according to prosecutors, showed Monte Paschi used the transactions to hide losses, leading to a misrepresentation of its accounts between 2008 and 2012. The deals came to light in January 2013, when Bloomberg reported that Monte Paschi used derivatives struck with Deutsche Bank to mask losses from an earlier derivative contract dubbed Santorini. A trial has been scheduled for December 15.

Deutsche Bank shares have halved in value this year.

Its share price is only a fraction of its 2007 peak and its capital reserves have shrunk to almost $US6bn.

The German lender also faces legal probes on a range of issues including Russia mirror trades, its dark pool, foreign exchange and Treasuries trading.