Published On: Wed, Sep 28th, 2016

Deutsche Bank Helps Lift European Stocks Before Yellen, Draghi

Janet Yellen

A rise in Deutsche Bank shares helped push European stocks higher on Wednesday, easing concerns over Germany’s financial sector that had hit equities in Asia and drove investors into safe-haven government bonds and the dollar.

Beyond banking sector worries, investors were looking ahead to U.S. Federal Reserve Chair Janet Yellen’s appearance before a Congressional committee, a speech by European Central Bank President Mario Draghi and a meeting of oil producers in Algiers

Deutsche, Germany’s biggest lender, faces big fines over claims it mis-sold mortgage-backed securities and, like other euro zone lenders, has been squeezed by the European Central Bank’s low interest rates. Its shares, which hit record lows on Tuesday have fallen some 50 percent this year

However, the stock rose more than 3 percent in early deals, helping push the pan-European STOXX 600 index up 1.2 percent, led by banks.

Analysts said sentiment towards riskier assets was also improved by data on Tuesday showing U.S. consumer confidence this month hit its highest since 2007.

German two-year government bonds, however, held near Tuesday’s record low of minus 0.711 percent. Before an auction of the bonds due later on Wednesday, they yielded minus 0.702 percent, flat on the day.

Asian shares spent much of the trading session in negative territory, on investor concern about the state of the European banking sector and lower oil prices.

MSCI’s broadest index of Asia-Pacific shares outside Japan moved in and out of negative territory and last stood less than 0.1 percent higher on the day.

Japanese shares fell, with the Nikkei 225 index .N225 falling 1.3 percent by the close.

Oil prices were slightly higher, partially reversing Tuesday’s fall of some 3 percent on diminished expectations that oil producers meeting in Algiers this week would reach an agreement to ease a global glut of crude.

Members of the Organization of the Petroleum Exporting Countries (OPEC) are due to meet at 1400 GMT. Some in the market say the Algiers talks could lay the groundwork for an agreement at OPEC’s formal policy meeting in Vienna on Nov. 30, said Vyanne Lai, oil analyst at National Australia Bank in Melbourne.

“I think OPEC producers realize they can’t continue to expand production indefinitely – OPEC producers are close to maximum capacity – so there could be room for a deal (in November),” Lai said.

Brent crude LCOc1, the international benchmark, last traded at $46.08 a barrel, up 11 cents on the day on data showing a surprise drawdown in U.S. inventories.

The dollar was up 0.3 percent against a basket of currencies. Fed chief Yellen testifies before the House Financial Services Committee on regulation but may face questions on the interest rate outlook and the economy.

The Fed left rates on hold last week but strongly signaled they could rise in December.

ECB head Draghi speaks in Berlin.

The euro fell 0.2 percent to $1.1188 EUR.

“While we admit that near-term downside risks to the euro have increased due to financial stability concerns we think that any setback into the $1.11 handle offers a buying opportunity,” Hans Redeker, head of currency strategy at Morgan Stanley said.

The yen weakened 0.3 percent to 100.70 per dollar and sterling dipped 0.2 percent to just below $1.30.

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