1. We have discussed at length about the Dividend/Buyback Boom…Dividends plus buybacks have exceeded Barclays Research’s estimate of free cash flow by $100bn/yr.
Source: Barclays, @joshdigga, @NickatFP
1. Volatile Action in DB Last Night…Opened Down 4%…Now up over 1%.
Deutsche Bank AG Chief Executive Officer John Cryan failed to reach an agreement with the U.S. Justice Department to resolve a years-long investigation into its mortgage-bond dealings during a meeting in Washington Friday, Germany’s Bild newspaper reported. “The risks in our derivatives book are massively overestimated,” DB Chief Risk Officer Stuart Lewis said. He said 46 trillion euros in derivatives exposure at Deutsche appeared large but reflected only the notional value of the contracts, while the bank’s net exposure to derivatives was far lower, at around 41 billion euros – DB opened DOWN 4% in Frankfurt, and is now UP 1.6% on the day…
1.British Pound has a 6% Flash Crash Last Night
The crash was reportedly triggered by a Financial Times articles stating French President Francois Hollande wanted to be hard on Britain in Brexit negotiations. That pushed the pound lower, triggering some algos to automatically sell. Thin trading volumes meant the impact of this was outsized and created a downward spiral as the slump triggered more algos to sell.
Kathleen Brooks, Research Director at City Index, says in an email on Friday morning: “Apparently it was a rogue algorithm that triggered the sell off after it picked up comments made by the French President Francois Hollande, who said if Theresa May and co. want hard Brexit, they will get hard Brexit.
“These days some algos trade on the back of news sites, and even what is trending on social media sites such as Twitter, so a deluge of negative Brexit headlines could have led to an algo taking that as a major sell signal for GBP. Once the pound started moving lower then more technical algos could have followed suit, compounding the short, sharp, selling pressure.”
1. Bond Proxies Get Hit
Utilities 10% Off Highs…Close below 200day.
“I know nobody knows
Where it comes and where it goes
I know it’s everybody sin
You got to lose to know how to win”
The next big worries putting pressure on the markets are the presidential election and the inevitable rise in interest rates. Some would argue that these headwinds are ultimately linked by politics. Although Republican nominee Trump may be the most unpredictable wildcard of all-time, we know from past Fortis letters pertaining to short-term volatility that “You got to lose to know how to win…” as legendary Aerosmith lead singer, Steven Tyler, would wail.