It seemed like every day last week the top headline in the financial news was focused on the problems at Deutsche Bank and the potential implications for the global markets. The concerns for Deutsche Bank are widespread, from the size of a potential Department of Justice (DOJ) settlement, to negative interest rates in Germany and Europe, to clients potentially pulling collateral and trades from its derivatives unit. Deutsche Bank’s derivative exposure is the largest of any bank worldwide and presents the most risk to the institution. By some measures, notional derivative exposure exceeds $50 trillion dollars. I expect this story will remain in the news for the foreseeable future.
The week ahead is capped by the release of the September employment report on Friday. I expect the current trend of strong, but not stellar, employment reports will continue. Initial jobless claims continue to remain low and hiring has remained steady. I expect the data will intensify the debate about the timing of an interest rate increase.
October historically is a challenging month for risk markets, and I remain cautious on third quarter earnings. I prefer to remain defensive on both stocks and bonds.
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