United States Authorities Are Looking At DWS Group Over Sustainable Investing Claims

Authorities in the United States are currently investigating DWS Group after a former executive said the firm overstated its sustainable investment criteria.

SEC And Federal Prosecutors Are Investigating DWS Group

Deutsche Bank AG’s asset-management arm, DWS Group, is currently under investigation by authorities in the United States. According to a report by the Wall Street Journal earlier today, the investigation comes after DWS’s former head of sustainability said the asset management firm overstated how much it used sustainable investing criteria to manage its assets.

The United States Securities and Exchange Commission and federal prosecutors are currently in the early stages of investigating the investment firm. DWS, with over $1 trillion in assets under management, overstated its sustainable investing efforts.

According to the Wall Street Journal, DWS Group struggled with its social, governance and environmental investing strategies. However, the firm sometimes painted a rosier picture, telling investors that its strategies in those areas were excellent.

When contacted via email, a spokesperson for DWS Group said the company doesn’t comment on regulatory matters. The Wall Street Journal also contacted the parent company Deutsche Bank, but it also declined to comment on the issue. Furthermore, the SEC also didn’t comment on the matter when it was contacted.

Deutsche Bank owns a majority of DWS, and it is a German financial giant. In recent years, Deutsche Bank reached agreements with numerous regulators for some shady acts of business.

DWS’s Stock Price Plummets

The news of the probe by United States authorities has sent the stock price of DWS into a free fall. DWS, which trades on the Frankfurt Stock Exchange, has seen its stock price drop by over 13% in the past 24 hours.

DWS stock chart. Source: FXEMPIRE

At the time of writing, DWS’s stock price is trading at EUR 36.28. Year-to-date, the asset management firm has performed well, with its stock price up by 10% since the beginning of the year.

Goldman Sachs to Raise Pay for Junior Investment Bankers – Business Insider

The bank’s second-year analysts will now make $125,000 in base compensation, while first-year associates will earn $150,000, Business Insider reported https://www.businessinsider.com/goldman-sachs-raises-salaries-investment-bankers-junior-analysts-associates-salary-2021-8?IR=T, citing two people familiar with the situation.

No formal announcement about the pay raise has been made and it was unclear which other levels of employees at the investment banking division have also been given salary increases, the report from the financial and business news website said.

Goldman Sachs declined to comment.

Investment banks have raised pay for first- and second-year associates this summer in an attempt to ease the strain on these workers and compensate them more for their work supporting more senior staff in a year of unprecedented deal making.

Citi Group, Morgan Stanley, UBS Group AG and Deutsche Bank AG have already increased pay for their first-year analysts to around $100,000, a raise of about $15,000.

In February, a group of junior bankers in Goldman’s investment bank told senior management they were working nearly 100 hours a week and sleeping 5 hours a night to keep up with an over-the-top workload and “unrealistic deadlines.” Half of the group, which consisted of 13 first-year employees, said they were likely to quit by summer unless conditions improved.

Goldman’s Chief Executive Officer David Solomon has said the bank was working to hire more associates to help with the workload, and vowed to enforce the “Saturday rule,” which prohibits employees from working between 9 p.m. Friday night and 9 a.m. on Sunday, except in certain circumstances.

(Reporting by Elizabeth Dilts Marshall, and Derek Francis in Bengaluru; Editing by Jacqueline Wong)

Deutsche Bank Optimistic on Revenues After Profit Beat

By Tom Sims and Patricia Uhlig

Germany’s largest lender’s second-quarter profits beat expectations and outperformed rivals in fixed income trading. The results also benefited from a sharp drop in provisions for loans at risk of souring during the pandemic.

The second-quarter profit figures are good news for CEO Christian Sewing, who launched a major restructuring in 2019 to return the bank to profitability after a string of regulatory failings and 8.2 billion euros ($9.7 billion) in losses over the past 10 years.

Sewing said in a memo to staff: “The right strategy and hard work do pay off.”

Finance chief James von Moltke told reporters he was bullish about the bank’s prospects and that revenue next year would probably be higher than previously forecast – closer to 25 billion euros than a previously targeted 24.4 billion euros.

Deutsche Bank‘s shares rose as much as 4.7% in early trade. They were flat at 0930 GMT.

Net profit attributable to shareholders came in at 692 million euros, from a loss of 77 million euros a year earlier. The figures were better than analyst expectations for a profit of 372 million euros.

“Deutsche Bank’s credit positive restructuring is solidly on track,” said Moody’s analyst Michael Rohr.

The bank decided to abandon a key cost target, which aims to reduce costs to 16.7 billion euros by 2022. The move came after Deutsche Bank flagged a number of unexpected outlays in recent months.

Deutsche said it would now focus on a cost-to-income ratio target of 70%.

CEO Sewing said: “Our priority now is to continue with our disciplined execution of transformation, quarter by quarter.”

Deutsche Bank’s results were supported by a decrease in provisions set aside to cushion fallout from the coronavirus pandemic. Provisions for credit losses were 75 million euros, down from 761 million euros a year earlier.

The investment bank’s advisory business was a standout amid a dealmaking boom, with revenue surging 166% to 111 million euros. An increase in asset management revenue and fees also helped to boost the bottom line.

Much has been riding on the performance of Deutsche’s investment bank, the group’s biggest revenue generator that helped the bank to eke out a small profit for 2020, its first after five years of losses.

Gains in the investment banking business allowed Deutsche to produce its strongest quarter in seven years at the start of 2021.

Revenue at this business declined 11% in the second quarter from a year earlier. It was the biggest fall in investment banking revenue since the bank’s revamp two years ago, but U.S. rivals also had a weaker quarter.

Barclays, which also reported earnings on Wednesday, beat forecasts on strong investment banking fees but its fixed income, currencies and commodities business was down against a strong first half a year ago.

Revenue at Deutsche’s fixed-income and currency sales and trading business dropped 11% to 1.8 billion euros. But markets divisions at major U.S. investment banks had a 28% decline in revenue, based on analyst research from Barclays.

Sewing in his staff memo compared the bank’s turnaround process to a marathon: “The 30-kilometre (19-mile) mark is where it starts to really hurt. But we also know that it is worth pushing on.”

($1 = 0.8470 euros)

(Reporting by Tom Sims and Patricia Uhlig; Editing by Kirsti Knolle, Maria Sheahan, Sherry Jacob-Phillips and Jane Merriman)

Deutsche Bank’s Profit Tops Estimates Despite Dip in Trading Revenue

The bank posted a fourth consecutive quarterly profit, its longest streak in the black since 2012.

Net profit attributable to shareholders in the second quarter came in at 692 million euros ($818 million), from a loss of 77 million euros a year earlier. The figures were better than analyst expectations for a profit of 372 million euros.

Graphic: Deutsche Bank results – https://graphics.reuters.com/DEUTSCHEBANK-RESULTS/lgpdwmokgvo/chart.png

Deutsche Bank‘s results were supported by a decrease in provisions set aside to cushion fallout from the coronavirus pandemic. Provisions for credit losses were 75 million euros, down from 761 million euros a year earlier.

A pocket of strength was the investment bank’s advisory business amid a boom in dealmaking, with revenue surging 166% to 111 million euros. An increase in asset management revenue and fees also helped boost the bottom line.

The profit figures are good news for Chief Executive Officer Christian Sewing, who launched a major restructuring in 2019 that involved shedding 18,000 staff in the hopes of returning the bank to profitability.

“Our priority now is to continue with our disciplined execution of transformation, quarter by quarter,” Sewing said in a statement.

The company decided to abandon a key target – an aim of reducing costs to 16.7 billion euros by 2022. The move came in after Deutsche Bank flagged a number of unexpected costs in recent months.

Sewing said he was committed to a 70% cost-income ratio target, as the lender will now focus on cost-to-income ratio.

Much has been riding on the performance of Deutsche’s investment bank, the group’s biggest revenue generator that helped the bank eke out a small profit for 2020, its first after five years of losses. Gains in the investment banking unit drove the bank to its strongest quarter in seven years at the start of 2021.

Revenue at the unit declined 11% in the second quarter from a year earlier. It was the biggest fall in investment banking revenue since the bank’s revamp two years ago, but U.S. rivals also saw a decline in the quarter.

 

Graphic: Investment bank revenue – https://graphics.reuters.com/DEUTSCHEBANK-RESULTS/zdpxoyxddvx/chart.png

 

Investors have wondered how sustainable progress will be as the bank continues to make efforts to boost profitability after years of losses.

The unit lost market share across an array of key services in the second quarter, data from Dealogic shows, demonstrating the fragility of recovery for the German lender.

($1 = 0.8460 euros)

(Reporting by Tom Sims and Patricia Uhlig; Editing by Kirsti Knolle, Maria Sheahan and Sherry Jacob-Phillips)

Banks Tighten Grip on FX Market as Algo Trading Rises – Survey

With a combined 30% share of the market in 2020, JP Morgan, UBS and Deutsche Bank took the top 3 positions in the widely watched Euromoney FX survey, as investors made a beeline for vendors offering more electronic trading and algorithmic tools in a year when the COVID-19 pandemic disrupted traditional trading arrangements.

A surge in market volatility due to the pandemic last March coincided with a disruption to trading, traditionally rooted in large trading floors at banks and hedge funds in Hong Kong, London and New York, as offices closed and workers were sent home.

That led to a rise in electronic and algorithmic trading and banks who had heavily invested in the space reaped rich rewards.

“Our investment in technology via our electronic and automated trading business was crucial,” said Chi Nzelu, head of macro eCommerce at JP Morgan, which also held the top spot for 2019. “Algo trading also came to the fore last year, helping to manage cost and access liquidity efficiently.”

The resurgence of the top banks comes at the cost of new entrants like XTX Markets, a dark pool operator, which had climbed steadily up the rankings to stand in third place in 2019, offering deeper trading liquidity and faster execution facilities.

The London-based market maker slipped to fourth place and also ceded market share.

The pandemic-induced volatility early last year widened bid-offer spreads to levels not seen since the global financial crisis, while reducing market depth even in currency pairs considered to be liquid.

While more widespread in equity markets, transacting via computers and high-powered algorithms has become increasingly popular in currency and bond markets in recent years with the pandemic accelerating the trend.

Banks have made heavy investments in algorithmic trading with top institutions offering a variety of solutions for trading currencies. For example, “adaptive algos”, offered by many banks in recent months, can change their trading styles automatically depending on fluctuating market conditions.

A study by Coalition Greenwich last month found the disruptions caused by the pandemic may have long-term effects on the behaviour of FX market participants.

More than 40% of financial FX traders employed algo trading in 2020 with nearly the same share expecting their usage of FX algos to increase in the next year, the study said.

For a look at all of today’s economic events, check out our economic calendar.

(This story corrects name of XTX Markets in 6th paragraph)

(Reporting by Saikat Chatterjee; Editing by Kirsten Donovan)

 

Deutsche Bank Hires Five Senior Wealth Managers From UBS

Led by Raoul Zehnder, the team will serve ultra-rich customers and the family offices that manage their wealth, as it seeks to gain market share in the market for British and Northern European money managed abroad, Deutsche Bank said in a statement.

“Today’s announcement is a strong sign of the commitment and progress Deutsche Bank’s EMEA Wealth Management business is making in this strategically important region,” Marco Pagliara, the bank’s head of international private banking for the Europe, Middle East and Africa (EMEA), said in a statement.

“We will continue to hire the best people in the industry to serve clients across the region in support of our ambitious growth agenda,” he added.

Zehnder will assume the role on Oct. 1, joined by senior relationship managers Patrik Minuscoli and Michael von Mecklenburg, senior investment manager Philipp Portenier, and account manager Vincent Weisse.

(Reporting by Brenna Hughes Neghaiwi, editing by Louise Heavens)

How Will EU Ban on 10 Banks From Bond Sales Impact Markets and Banks?

Here’s what the move means for EU debt sales, bond markets and the affected banks:

WHICH BANKS ARE AFFECTED?

Banks from all corners of the world are affected: U.S. lenders JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. as well as British peers Barclays Plc and NatWest Group Plc are on the list.

In continental Europe, Deutsche Bank AG, Natixis SA and Credit Agricole SA and UniCredit SpA are affected. Plus Japan’s Nomura Holdings Inc.. All banks declined to comment.

All on the list of 39 primary dealers responsible for managing debt sales — syndicated and auctioned — for the bloc and managing its debt trading in the secondary market.

Many are Europe’s go-to banks in the public sector bond market; seven are among the top 10 fee earners from syndicated debt sales in this market since 2020, according to Dealogic.

WHAT DID THEY DO?

The ban relates to lenders found being part of three cartels in the past three years. One saw a number of banks fined over tinkering in FX spot markets between 2007-2013. Another one found a number of banks colluded on trading strategies and pricing between 2010-2015 on public sector bonds – debt issued by government-linked institutions. A third one related to a cartel of traders at various banks in the primary and secondary market for European government bonds.

HOW BIG WILL FEE LOSSES BE?

Sitting out from syndications, where investment banks are hired by an issuer to sell debt directly on to end investors, means losing out on lucrative fees. Banks netted 20 million euros – 0.1% of the 20 billion euros – in fees from Tuesday’s debut bond, according to Reuters calculations.

Fees vary with debt maturities; the longer the bond, the higher the fees.

An average of its fees across all maturities for the remaining 60 billion euros of this year’s long-term debt issuance would translate into a pool of another 66 million euros if all that debt were to be syndicated, Reuters calculations showed. Considering it will be divided among all banks participating, that’s a relatively small amount compared to the $224 million top earner JPMorgan alone reaped from syndicated European public sector debt sales since the start of 2020, according to Dealogic.

The EU also pays smaller fees for its recovery fund debt than European sovereigns. However, it currently issues all its debt through syndications and will rely on them much more heavily than sovereigns even after auctions start in September, meaning it is a fee source banks won’t want to miss out on.

Exclusion also means smaller lenders could see their fee share increase. Graphic: EU syndication fees: https://fingfx.thomsonreuters.com/gfx/mkt/azgvooddjvd/4Xyrm-eu-syndication-fees-for-recovery-fund-bonds.png

HOW LONG WILL THE BAN LAST?

No timeline has been given. EU Budget Commissioner Johannes Hahn said the commission would work through information provided by banks on how they addressed the issues “as fast as possible”.

Sources told Reuters some banks already submitted information, with the remaining ones expected to follow soon. This could mean some of the banned banks could get the green light to rejoin bond sales, the sources said.

A senior debt banker at a primary dealer not banned said he expects at least a few of the banks to be re-admitted by September, when EU auctions begin.

WILL IT HIT LIQUIDITY?

ECB bond buying has zapped some liquidity in the bloc’s fixed income markets. Liquidity matters to investors, making it easier and cheaper to transact.

Syndication fees are a key factor that motivate banks to participate in auctions that are much less lucrative but crucial to maintain liquidity.

European governments have lost primary dealers in recent years as banks have judged the business to be less profitable.

And having less major banks left to underwrite its syndications could also pose risks for the EU.

(Reporting by Yoruk Bahceli, Abhinav Ramnarayan, Dhara Ranasinghe and Iain Withers in London, John O’Donnell in Frankfurt and Foo Yun Chee in Brussels; writing by Karin Strohecker; Editing by Chizu Nomiyama)

 

Deutsche Bank Outshines Wall St Rivals with Best Quarter Since 2014

By Tom Sims and Patricia Uhlig

FRANKFURT (Reuters) -Deutsche Bank posted a better-than-expected net profit for the first quarter, its strongest in seven years, driven by its investment banking activities that outperformed major U.S. rivals.

Not long ago, Deutsche’s sprawling investment bank was viewed as its problem child following dwindling revenue and scandals involving the sale of mortgage securities and the laundering of money from Russia. Deutsche managers said they would focus more on old-fashioned retail and corporate banking.

But now, revenue of the fixed-income trading business and origination and advisory services have surged, trends that have also lifted profits of competing banks, and helped offset lacklustre performance at Deutsche’s other divisions.

Deutsche, Germany’s largest lender and one of the world’s most important, on Wednesday reported a first-quarter net profit attributable to shareholders of 908 million euros ($1.1 billion) versus a year-earlier loss of 43 million. That beat consensus profit expectations of around 600 million euros, and was the best quarter since the first three months of 2014.

The profit figures were good news for Chief Executive Christian Sewing, who embarked on a radical restructuring two years ago that involved shedding 18,000 staff in an effort to return the bank to profitability.

“Even though we undoubtedly benefited from a favourable market environment, this result shows once again that we are on the right track with our strategy,” Sewing told staff.

Deutsche said it now expects revenue to be essentially flat in 2021 compared with a previous estimate of marginally lower. The shares traded 9.5% higher at 1134 GMT in Frankfurt.

The bank had hoped to trim costs to 18.5 billion euros for 2021 but additional costs of around 400 million euros in bank levies and a German deposit protection scheme following the collapse of Greensill Bank, the lender owned by insolvent UK finance firm Greensill, could make that difficult to achieve.

Michael Rohr, analyst with ratings agency Moody’s, said the bank’s results “propel its profitability to a new level”.

Analysts at Citigroup called it “an impressive quarter” but kept a “sell” rating as they predict the bank will miss a key profitability target – an 8% return on tangible equity in 2022.

The investment bank’s resilience helped Deutsche eke out a small profit for 2020, its first after five years of losses.

Questions remain about the sustainability of the investment banking boom, but analysts expect Deutsche to deliver another profit in 2021, a consensus forecast of their estimates shows.

“The trajectory we are on is significantly ahead” of last year, finance chief James von Moltke told journalists when asked about profit for 2021.

Deutsche’s key fixed-income and currency sales and trading business, with revenue up 34% at nearly 2.5 billion euros, marked its best quarter since 2015.

That growth is better than some U.S. investment banks. Goldman Sachs reported a 31% rise in such trading in the first quarter, while those at JPMorgan were up 15%.

Origination and advisory services revenue at Deutsche, up 40%, showed its best quarter since 2017. That was partly due to its business in Special Purpose Acquisition Companies (SPACs). Asset management revenue rose 23%.

Low interest rates and a slowdown in global trade pressured revenue at Deutsche’s other divisions, such as those for corporate and retail clients, where revenue stagnated.

In a sign the bank sees itself over the hump of the coronavirus pandemic, it expects risk provisions for credit losses of around 1.1 billion euros this year, down from 1.8 billion last year.

“It remains to be seen if that will be enough,” Klaus Nieding of the shareholder lobby group DSW said.

($1 = 0.8282 euros)

(Reporting by Tom Sims and Patricia Uhlig; editing by Jason Neely, Elaine Hardcastle and David Evans)

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Deutsche Post Shares Gain on Strong Profit Outlook; Target Price EUR 53

The world’s largest courier company Deutsche Post forecasts operating profits to grow this year and next after recording more than 50% jump in the last quarter as the coronavirus pandemic drove a massive shift towards e-commerce deliveries.

German multinational package delivery and supply chain management company forecasts EBIT to further grow in 2021 from the underlying base in 2020 of around EUR 5.4 billion. Moreover, the company’s EBIT for 2022 is expected to be above 2021.

The outlook for the aggregated free cash flow for the period 2020 to 2022 is revised to more than EUR 6 billion, up from the previous EUR 5.0 – 6.0 billion. The total gross capex for the period is now expected to be at around EUR 9.5 billion.

The courier company said it will provide a detailed outlook for the years 2021 and 2023 when it releases its comprehensive consolidated annual results on March 9.

Deutsche Post shares closed 2.15% higher at €41.83 on Tuesday; the stock rose about 20% in 2020.

“We think the positive share reaction to DPDHL’s beat in 4Q and upgraded guidance up to 2022 is justified: the group pre-announced 4Q results with 11% 4Q EBIT beat vs Bloomberg consensus, and new FY21 outlook implies a 4% upgrade to FY21 consensus expectations,” noted Rasika Sankpal, equity analyst at Morgan Stanley.

“While FY22 outlook has also been upgraded (to above EUR5.4bn, vs upper range at above EUR5.3bn previously), this is already in line with consensus. EBIT upgrade is also driving higher FCF, which is reassuring.”

Deutsche Post Stock Price Forecast

Sixteen analysts who offered stock ratings for Deutsche Post in the last three months forecast the average price in 12 months at €45.60 with a high forecast of €53.00 and a low forecast of €37.50.

The average price target represents a 9.21% increase from the last price of €41.76. From those 16 analysts, 14 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of €37.5 with a high of €51.5 under a bull scenario and €21 under the worst-case scenario. The firm currently has an “Overweight” rating on the courier company’s stock.

Several other analysts have also recently commented on the stock. Deutsche Post AG received a €50.00 price objective from research analysts at Sanford C. Bernstein. JP Morgan set a €49.52 price target and gave the stock a “buy” rating. Barclays set a €47 target price and gave the company a “buy” rating.

In addition, UBS Group set a €45.00 price target and gave the company a “buy” rating. Warburg Research set a €40 price objective and gave the stock a “neutral” rating. At last, Baader Bank set a €40 target price and gave the company a “buy” rating.

Analyst Comments

“The group outlined several productivities and cost control measures at P&P and progress has been made over the year, providing conviction that management is on track. Reiteration of FY20 group EBIT targets at the CMD underscores support for the mid-term FCF profile and valuation attractions,” Morgan Stanley’s Sankpal added.

“DHL is a solid business with a return on capital substantially above its cost of capital. Margins still have room to grow toward best-in-class levels, but capital employed, and contract structures could limit the full closure of the gap. DP’s P/E multiples still lag leading peers in each business unit, indicating there is more room for upside in every business.”

Upside and Downside Risks

Risks to Upside: 1) Pricing Power. 2) Cost Control. 3) Increased efficiencies. 4) Working capital management– highlighted by Morgan Stanley.

Risks to Downside: 1) Global trade risks. 2) GDP growth slowdown. 3) Wage inflation. 4) In addition, DP could be subject to regulatory reviews that impact operations and cash flows.

Check out FX Empire’s earnings calendar

Global Markets Break Hard To The Downside – Watch Support Levels

RESEARCH HIGHLIGHTS:

  • New reports of widespread financial corruption likely triggered the current sell-off.
  • Watch out for market support levels to see if this is a short-term correction or the start of a downtrend.
  • Support for the DOW is just above 26,000.
  • Support for the SP500 is around 3,100.

US and global markets were already under pressure over the past few weeks related to COVID-19 issues and global economic expectations.  The technology sector had driven valuations to levels not seen since the DOT COM bubble near the end of August and many of the US Indexes has reached or breached all-time highs again.  My research team and I warned followers to “stay cautious” throughout much of the price rally as our proprietary price modeling systems suggests the rally was isolated and not organic.  The US Fed has spewed capital into the markets and speculative traders piled into the “excess phase” of the market to drive price levels higher.  Take a moment to review these recent research posts to learn more:

September 13, 2020: MAKE OR BREAK – BIG TRENDS AHEAD

September 1, 2020: ARE FANGS GOING TO BREAKDOWN SOON?

August 27, 2020: EXPANDING WEDGE MAY PROMPT BIG PRICE CORRECTION – COULD A BIG TOP BE SETTING UP RIGHT NOW?

MARKETS SELLING OFF ON NEWS

Before we get into the price charts, we want to highlight the news that is driving much of this selloff in the markets.  Early Monday reports (or late Sunday, depending on your location) were published highlighting illegal and nefarious activity by many global banks related to money laundering and supporting criminal rogue elements throughout the globe.  The names of the banks implicated include Deutsche Bank, Standard Chartered, Barklays, Commerzbank, Danske Bank and HSBC Holdings.  It appears the European and Asian banks had the largest exposure to this activity and risk.  There is some talk that Russian banks may have been involved as well (unconfirmed at this time by our research).

What this means for traders is that a broad, global financial crisis may be starting to unfold – this time vastly different than the 2008-09 credit crisis.  This event will be centered around illegal and corrupt actions at some of the world’s largest financial institutions and the far-reaching aspects of rogue government or private elements involved in this activity.  We believe the markets will attempt to find support after the shock of this news is digested.  Longer-term, I believe a broader market downtrend may continue – it’s just a matter of what happens next and how fast global authorities are able to engage in a proper form of legal resolution (indictments).

At this point in time, the news that global banks were acting illegally and improperly may prompt a much broader market downtrend over time.  Right now, we believe the initial “shock-wave” will be processed in price and support levels will be found fairly quickly.

SUPPORT LEVELS

This Daily YM chart below highlights the support level near 26,000 that we believe will become the first floor for price as this selloff continues.  Our proprietary Fibonacci price modeling system is also suggesting support levels just above the 26,000 are valid (see the RED and BLUE SQUARES on the right side of this chart).  My research team believe price will attempt to find support near the 26,000 level as this broad market selloff matures.

This ES Daily chart also highlights the support levels near 3,090 (the lower YELLOW line) and aligns with our proprietary Fibonacci price modeling suggested support levels just above 3,100.  We believe this will be the first level of support for the ES if the downtrend continues.

Yes, my team has been warning to stay cautious throughout much of the uptrend and we have highlighted a multi-year Head-and-Shoulders pattern that we believed could prompt a broader market decline.  But we were not aware of this illegal activity related to the global banking system.  Our research helps to confirm that technical analysis and our proprietary price modeling/research systems can act as clear forward-looking techniques for any skilled traders.  The theory that price always internalizes news before or as the news happens suggests that technical analysis will, in almost all cases, highlight the most probable outcome before the news is known.  Only in very rare “acts of God” is technical analysis sometimes delayed in reacting to the news.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders.

If you want to survive the trading over a long period of time, then you learn fairly quickly how important it is to protect against risk and to properly size your trades.  Subscribers of my Active ETF Swing Trading Newsletter can ride my coattails as I navigate these financial markets and build wealth. My research and trading team are here to help you find better trades and navigate these incredibly crazy market trends.

While most of us have active trading accounts, our long-term investment and retirement accounts are equally at risk. We can also help you preserve and even grow your long term capital when things get ugly (likely now) with our Passive Long-Term ETF Investing Signals.  Don’t wait until it is too late – subscribe today!

For a look at all of today’s economic events, check out our economic calendar.

Stay safe and healthy!

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

European Equities: Economic Data, Earnings, and U.S Stimulus in Focus

Economic Calendar:

Friday, 31st July

French GDP (QoQ) (Q2)

German Retail Sales (MoM) (Jun)

French Consumer Spending (MoM) (Jun)

French CPI m/m (Jul) Prelim

French HICP m/m (Jul) Prelim

Spanish GDP (QoQ) (Q2)

Italian CPI (MoM) (Jul) Prelim

Eurozone CPI (YoY) (Jul) Prelim

Eurozone Core CPI y/y (Jul) Prelim

Eurozone GDP q/q (Q2) 1st Estimate

Eurozone GDP y/y (Q2) 1st Estimate

The Majors

It was a particularly bearish day for the European majors, with the DAX falling a to 1-month lows on Thursday.

The DAX30 slid by 3.45% to lead the way down, with the CAC40 and EuroStoxx600 falling by 2.13% and 2.16% respectively.

Particularly dire economic data from Germany and the U.S, corporate earnings weighed on the European majors. Trump’s tweet of considering a delay to the U.S Presidential Election added the market angst on the day.

The Stats

It was a busy day on the Eurozone economic calendar. Key stats included 2nd quarter GDP and July unemployment figures from Germany.

The Eurozone’s unemployment figures for June and prelim July inflation figures from Germany had a muted impact on the day.

Germany’s economy contracted by 10.1% in the 2nd quarter, following a 2% contraction in the 1st quarter. Economists had forecast a 9% contraction. This was the largest decline since calculations began 50 years ago.

According to Destatis,

  • An unprecedented slump in exports and imports of goods and services, household final consumption expenditures, and capital formation in machinery and equipment contributed.
  • General government raised its final consumption expenditure, however.

Year-on-year, the economy contracted by 11.7%, following a 1.8% contraction in the 1st quarter. Economists had forecast a 10.9% contraction.

On the positive, however, were better than expected German unemployment figures for July. The unemployment rate held steady at 6.4%, with the number of unemployed falling by 18k, following a 68k rise in June. Economists had forecast a 43k rise in the unemployed and for the unemployment rate to increase to 6.5%.

From the U.S

Late in the European session, 2nd quarter GDP and the weekly jobless claims were in focus.

In the 2nd quarter, the U.S economy contracted by a whopping 32.9%, following a 5% contraction in the 1st quarter. Economists had forecast a 34.1% contraction. Though this was of little consolation.

The weekly jobless claims were also on the rise once more. In the week ending 24th July, initial jobless claims rose by 1.434m, following a 1.422m jump from the previous week. Economists had forecast a 1.450m increase.

The Market Movers

For the DAX: It was a particularly bearish day for the auto sector on Thursday. Volkswagen slumped by 5.96% to lead the way down, with Continental sliding by 3.71%. BMW and Daimler saw more modest losses of 2.56% and 2.95% respectively.

Volkswagen reported an operating loss for the 1st half, while also slashing its dividend, which weighed heavily on the day.

It was another bearish day for the banks. Deutsche Bank fell by 2.65%, with Commerzbank sliding by 4.52%.

From the CAC, it was a particularly bearish day for the banks. Soc Gen and Credit Agricole slid by 5.07% and 4.69% respectively, with BNP Paribas falling by 3.97%.

It was even worse for the French auto sector. While Peugeot slid by 4.80%, Renault tumbled by 9.26%, off the back of a record net loss for the 1st half of the year.

Air France-KLM joined the broader pack, sliding by 4.59%, while Airbus SE bucked the trend, rising by 1.87%.

The upside for Airbus came in spite of second-quarter revenue sliding by 55%. Better than expected FCF and plans not to erode FCF in the 2nd half of the year supported the upside.

On the VIX Index

It was a back into the green for the VIX on Thursday. Partially reversing a 5.72% loss from Wednesday, the VIX rose by 2.74% to end the day at 24.76.

Particularly dire 2nd quarter GDP numbers and a 2nd consecutive rise in U.S initial jobless claims weighed on the S&P500 and the Dow.

U.S President Trump’s tweet of considering a delay to the November Presidential Election didn’t help…

The S&P500 and Dow fell by 0.38% and by 0.85% respectively, while the NASDAQ rose by 0.43%. The upside for the NASDAQ came in anticipation of earnings from Alphabet, Amazon.inc, Apple, and Facebook after the market close.

VIX 31/07/20 Daily Chart

The Day Ahead

It’s another busy day ahead on the Eurozone economic calendar. Key stats include 2nd quarter GDP numbers from France, Spain, and the Eurozone. June’s consumer spending and retail sales figures for France and Germany will also draw attention.

Prelim June inflation figures for France, Italy, and the Eurozone are also due out but will likely have a muted impact.

On the earnings front, BNP Paribas and Air France KLM are also in focus on the day.

From the U.S

June’s personal spending and inflation figures, together with finalized July consumer sentiment figures are due out.

Earlier in the day, China’s private sector PMIs for July could influence the mood.

Away from the numbers, tech stocks will likely get a boost following better than expected earnings results after the U.S close.

There is also the expiration of the U.S enhanced federal unemployment insurance policy to consider. With another jump in jobless claims, disagreement on Capitol Hill risks a further delay to the stalled COVID-19 stimulus package.

When considering the state of the U.S economy and the continued spread of COVID-19, even the passing of the stimulus package may not be enough…

The Latest Coronavirus Figures

According to figures at the time of writing, the number of new coronavirus cases rose by 268,725 to 17,440,017 on Thursday. On Wednesday, the number of new cases had risen by 287,638. The daily increase was lower than Wednesday’s rise and down from 270,301 new cases from the previous Thursday.

Germany, Italy, and Spain reported 4,022 new cases on Thursday, which was up from 3,179 new cases on Wednesday. On the previous Thursday, 3,593 new cases had been reported.

From the U.S, the total number of cases rose by 58,655 to 4,626,692 on Thursday. On Wednesday, the total number of cases had increased by 69,828. On Thursday, 23rd July, a total of 69,116 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the Dow was up by 169 points.

For a look at all of today’s economic events, check out our economic calendar.

A Full-Fledged Tech Cold War Could Cost the Global ICT Sector $3.5 Trillion: Deutsche Bank

A full-fledged tech cold war could cost the global information and communications technology sector around $3.5 trillion over the next five years due to loss of domestic Chinese demand, costs of shifting global supply chain currently located in China and higher operating costs due to the emergence of two divergent tech standards, according to Deutsche Bank.

“We conduct a top-down analysis of the impact on the Global Information & Communications Technology sector from a full-blown cold war. It shows that the ensuing demand disruption, supply chain upheaval and resultant ‘Tech Wall’ that would delineate the world into rivalling tech standards could cost the sector more than $3.5 trillion over the next five years,” said Apjit Walia, global technology strategist at Deutsche Bank.

“We believe 5-8 years is an appropriate time period although some supply chain experts believe the time to relocate the cluster of supply chain networks could take as long as 10 years. Globally, China has about 13% of revenues of the ICT sector amounting to around $730 billion per annum. In the worst-case scenario of a full-fledged tech cold war, the ICT sector would stand to lose these revenues.”

The recent tech rally has been at odds with economists maintaining a gloomier global economic outlook. The rally is largely driven by the optimism of economic recovery and a much stronger rebound in the technology sector. However, equity analysts believe technology shares are most vulnerable due to worsening U.S.-China relations.

The S&P 500 information technology sector has returned about 10% in 2020, including reinvested dividends. Although during the tech bubble of the 1990s the sector has never booked over 14% of the S&P 500’s earnings, its profit contribution surged to more than 20% of S&P 500 net income in recent years.

The post-COVID-19 tech recovery and a potential tech cold war are two of the most salient aspects of the current market dynamics. Tensions between the U.S. and China continue to rise and spread to other parts of the world with much discussion on the probabilities of the various tail scenarios.

“A nuanced observation of the tariff and geopolitical issues between the two countries over the past few years suggest they are primarily a smaller strategy that is part of a larger Global Tech Cold War. The DB Tech Cold War Index has been trending higher since 2016 with peaks coinciding with tit-for-tat measures by the US and China on technology IP protection and countermeasures. It made an all-time high in April 2020 with the COVID-19 crisis fueling tensions and has spiralled higher since then,” Deutsche Bank’s Walia added.

“The political headlines are matching the sentiment among the populace. Recurrent surveys we conducted from April to June show that post-COVID tempers remain at elevated levels with 41%+ of Americans and 35%+ of Chinese stating they will not buy each other’s products. An election year in the U.S. further complicates this geopolitical dynamic.”

According to Tipranks’ Analyst Consensus By Sector, 151 technology stocks out of 596 were rated “Strong Buy”, 320 were rated “Moderate Buy”, 106 were rated “Hold”, 19 were rated “Moderate Sell” while none were rated “Strong Sell”.

Google And Deutsche Bank Announce Strategic Partnership

Alphabet’s Google and Deutsche Bank have announced to form a strategic partnership to provide the German lender access to cloud services and create innovation in technology-based financial products for clients.

This deal is a part of Deutsche Bank’s plan to make targeted investments in technology and innovation, utilising a budget of 13 billion euros by 2022. Both have signed a letter of intent and plan to sign a multi-year contract within the next few months.

Deutsche Bank anticipates the partnership to earn over 1 billion euros in accumulated earnings before income and tax over the next decade, reported by Reuters, citing a familiar source.

Executives’ comments

“For more than 150 years, Deutsche Bank has been an industry pioneer, with a strong record of innovation in the financial services sector,“ Sundar Pichai, CEO of Google and Alphabet said a press release. “We’re excited about our strategic partnership and the opportunity for Google Cloud to be helpful to Deutsche Bank and its clients as they grow their business and shape the future of the financial services industry.”

“The partnership with Google Cloud will be an important driver of our strategic transformation,” Christian Sewing, CEO, Deutsche Bank said a press release. “It demonstrates our determination to invest in our technology as our future is strongly linked to successful digitization. It is as much a revenue story as it is about costs.”

Google price target

Thirty-one analysts forecast the average price in 12 months at $1,527.66 with a high of $1,800.00 and a low of $1,237.00. The average price target represents a 1.87% increase from the last price of $1,499.65, according to Tipranks. From those 31, 29 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $1,400 with a high of $1,725 under a bull scenario and $960 under the worst-case scenario. Alphabet had its price target boosted by Canaccord Genuity from $1,550.00 to $1,700.00 and held a ‘Buy’ rating on the information services provider’s stock.

Robert W. Baird raised the price target from $1,500.00 to $1,650.00 and Goldman Sachs Group raised to $1,775.00 from $1,425.00 with a ‘Buy’ rating. The company price objective suggests a potential upside of over 23% from the company’s current price. BofA global research raised price objective to $1,610 from $1,420 and Citigroup raised it to $1600 from $1400.

Analyst view

“Google Websites growth is likely to rebound in 2021 as we believe there are several underappreciated products driven by mobile search, strong YouTube contribution, and continued innovation, such as Maps monetization,” Brian Nowak, equity analyst at Morgan Stanley noted in April.

“Continued expense discipline leads to operating leverage and upward revisions on EPS estimates,” the analyst added.