Deutsche Doubts Damage Sentiment

A few clients pulling money from derivatives trading accounts was all it took to turn a quiet day of trading into a flight to safety. The Swiss franc was the top performer while the Australian dollar lagged in a typical European banking worry trade. Japanese CPI and industrial production are due later. The Premium short in the Dow30 was closed for a 200-pt gain as the index neared key support. The entry had been brought lower before the start of NY trading to 18350 from 18380. Another index short remains in progress.

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The old adage about bank runs applied on Thursday. What do you do when there is a lineup outside of your bank? You get in it. When there are signs that clients are withdrawing money, no one wants to be the last one to take out their cash and that's what starts a bank run. In this case, a newswire reported that about 10 derivatives trading clients had recently taken out some excess cash.

Shares of the Deutsche Bank ADR fell nearly 7% on the headlines as the 22% decline since the start of September continued. Rumors of trouble and bailouts have been rampant in the past week and sentiment was clearly fragile.

On the face of it, the story seems entirely minor but the nature of bank runs speaks to sudden lack of confidence in the bank and the urgent need to erase worries. The S&P 500 had been trading largely flat before the news and finished 20 points lower.

The FX market took a more measured view. EUR/USD had been at a session high of 1.1250 minutes before the news and sank to 1.1205 afterwards but still held the earlier session low. In general, the yen was bid and commodity currencies soft but the overall moves were limited.

One spot that stands out is CAD. Oil was higher for the second day but USD/CAD climbed 70 pips to nearly erase the post-OPEC drop. The inability of CAD to hold a bid is troublesome and we're beginning to worry that it reflects the risk of Donald Trump tearing up NAFTA.

Looking ahead, the focus is on Japan. Part of the reason for the early yen strength Thursday was a soft retail sales report. We will get another look at economic fundamentals with the 2330GMT releases of jobs and CPI data. The latter is the one to watch with the national CPI forecast down 0.5% y/y.

Next is the industrial production report at 2350 GMT. The consensus is a 0.5% m/m rise. Talk of a BOJ cut, by as much as 20 bps, continues to do the rounds.