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Asia Rises, Relief in Deutsche Bank, GBP Falls

Financial_Markets

Asian stocks rose and sovereign bonds fell as concern about Deutsche Bank AG’s finances eased after the lender was reported to be lining up a less-costly settlement with US regulators than investors had feared. Brexit angst weighed on the pound and oil declined.

Financial shares helped the MSCI Asia Pacific Index recoup more than half of Friday’s loss, after the S&P 500 Index advanced in the last session. Sterling slid versus most of its major peers after British Prime Minister Theresa May said she’ll start pulling the U.K. out of the European Union in the first quarter of 2017. Crude retreated from a six-week high on prospects for increased US supplies, while New Zealand’s 10-year bond yield rose from a three-week low. Markets in China, Malaysia and South Korea were shut for holidays on Monday.

Relief spread across US and European equity markets on Friday as Agence France-Presse reported that Deutsche Bank was nearing a $5.4 billion settlement with the American Department of Justice, less than half the amount initially sought in connection with a probe into mortgage-backed securities. The financial woes of Germany’s biggest lender as it struggles with tougher capital standards and soaring legal bills adds to a list of market risks that includes Brexit and tightening US monetary policy.

“We’re seeing a relief rally,” said Hans Goetti, the Dubai-based chief strategist for the Middle East and Asia for Banque Internationale à Luxembourg, which manages $40 billion. “I’m not so sure whether we’re out of the woods on that but then the worst-case scenario is for the German government to take a stake in the bank. There’s no way the bank will go under.”

Stocks

The MSCI Asia Pacific Index rose 0.6% as of 7:11 a.m. London time, after falling 1.1% in the last session. Financial shares accounted for about a quarter of the move, buoyed by Deutsche Bank’s 6.4% surge in Germany on Friday. The German lenders’ shares sank to a record low last week and are still down more than 50% from where they were a year ago.

“Concern about Deutsche Bank is far from over,” said Nicholas Teo, a strategist at KGI Fraser Securities in Singapore, said by phone. “Systemic risk is a real possibility with the derivatives exposure that plagues Deutsche.”

Australia’s S&P/ASX 200 Index climbed to a one-month high with trading volumes about 50% below their 30-day average amid holidays in states including New South Wales. Benchmarks in Hong Kong and India were the best performers, gaining 1.1% .

Galaxy Entertainment Group Ltd. rallied more than 2% in Hong Kong after Macau reported a bigger-than-expected increase in its gambling revenue for September. China Overseas Land & Investment Ltd. slid to a two-week low after local governments in seven Chinese cities tightened home-buying rules. CapitaLand Ltd., Singapore’s biggest developer, fell as much as 1.9% after a report showed the city-state’s home prices dropped in the last quarter by the most in seven years. Kawasaki Heavy Industries Ltd. tumbled 11% in Tokyo after the company slashed its profit forecast.

Futures on the Euro Stoxx 50 Index and S&P 500 contracts moved less than 0.1% ahead of the release of manufacturing gauges for the euro area and the US.

Currencies

“We’re back to the Brexit risks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “The sterling has taken a bit of knock first. If the concerns become wider concerns about financial market contagion we will find that the slight softening that we’ve seen in the dollar trend will be shaken off.”

New Zealand’s dollar weakened 0.3% before Fonterra’s GlobalDairyTrade whole milk powder auction on Tuesday. Milk is the South Pacific nation’s No. 1 export and prices decreased when the fortnightly sale was last held on Sept. 20.

The offshore yuan was little changed at 6.6769 per dollar in the first trading session since the Chinese currency was added to the International Monetary Fund’s Special Drawing Rights on Saturday. China’s domestic markets are shut for all of this week.

Colombia’s peso is likely to be sold off following the unexpected rejection in a referendum of a peace deal between the government and Marxist guerrillas, according to Goldman Sachs Group Inc. analysts. The currency strengthened more than 3% in each of the last two months.

Commodities

Crude oil fell 0.5% to $48.01 a barrel after rising 8% over the previous three sessions as OPEC members forged a preliminary agreement to reduce output. The number of rigs targeting crude in the US rose for a fifth consecutive week, Baker Hughes Inc. said Friday. Iran wants to increase exports to 2.35 million barrels a day in the coming months, state news agency IRNA reported.

Industrial metals held recent gains after a weekend report showed China’s official manufacturing purchasing managers’ index steadied at the highest level in almost two years. The LME Index — a measure of copper, aluminum, nickel, tin, zinc and lead prices on the London Metal Exchange — entered a bull market last week and climbed to a 14-month high.

Gold was little changed after sliding 1.6% last week, the most since July.

Bonds

New Zealand’s 10-year bond yield rose by four basis points to 2.33% and Japan’s added 1-1/2 basis points to minus 0.07%. Rates on similar-maturity sovereign debt in the US and France increased by one basis point to 1.60% and 0.20%, respectively.

(Source: Bloomberg)