Deutsche rally helps boost risk appetite

European markets have reversed course, following a largely negative Asian session with the major indices all gaining ground this morning. The resurgence of Deutsche Bank’s shares has gone a long way to restoring confidence in Europe, with fears of a banking meltdown easing for now. The bank is faced with a $14 billion bill that is roughly the equivalent to the current €15 billion market cap. With the government clearly unwilling to bail out the bank, it instead falls upon the firm to start negotiating down the bill and selling off assets, as we have already seen with today’s sale of Abbey Life insurance group to Phoenix Life. However, there is an argument to be had that the decision from US Department of Justice to completely destabilise the European banking system as retribution for Deutsche Bank’s role in the disruption of the US financial system is far from helpful. The size of the bill seems excessive at best and without the ability to negotiate down the amount, we could see one of the biggest banks in mainland Europe split up.

The crunch crude talks continue today, as the narrative continues to focus upon a rivalry between Iran and Saudi Arabia. Seemingly the Saudis would be willing to take a cut as long as they can restrict the amount of output the Iranians can produce. This may have as much to do with limiting the financial capabilities of their adversaries as it does propping up crude prices. In either case, the Iranians seem unwilling to freeze production at anything less than their pre-sanction levels, leaving us at yet another crossroads which will likely end in deadlock. Ahead of the open we expect the Dow Jones to open 29 points higher, at 18,257.