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London - Declines in banks and energy producers dragged down stock-markets around the world, prompting investors to seek the safety of government bonds and the yen.
European shares headed for their biggest drop since July as Deutsche Bank sank to a record on speculation Germany’s biggest bank may need to raise capital.
Energy firms fell as crude held most of Friday’s slump on doubts that producers will agree on action to support prices when they meet on Wednesday.
Emerging markets tumbled, with Turkey’s lira sliding after Moody’s Investors Service cut the nation to junk and the Philippine peso reaching a seven-year low on international mistrust of President Rodrigo Duterte.
Deutsche Bank’s crunch adds to the accumulating risks for global investors. Oil prices are volatile before Wednesday’s meeting of Russia and OPEC members after similar discussions failed in April.
US Democratic and Republican Party candidates Hillary Clinton and Donald Trump are tied in a two-way race for the presidency as they head for the first of three debates on Monday.
Western powers traded barbs with Russia during an acrimonious emergency meeting of the UN Security Council to halt intensive bombing of Aleppo. And speeches are due from the head of the European Central Bank, as well as regional Federal Reserve chiefs.
"The drama around Deutsche Bank puts the European financial sector in the spotlight once again," said Michael Woischneck, who manages about $180m as senior equities manager at Lampe Asset Management in Dusseldorf, Germany.
"We’re also entering a quarter with a lot of political event risks and I’d expect big swings in volatility."
Stocks
The MSCI All-Country World Index of shares fell 0.5% as of 10:59 London time, declining for a second day. The Stoxx Europe 600 Index dropped 1.5%, heading for its biggest slide since early July, while S&P 500 Index futures expiring in December lost 0.6%.
Deutsche Bank fell 6.5% after a report that German Chancellor Angela Merkel has ruled out any state assistance before the national election next year.
Concern that the lender’s capital buffers will be undermined by mounting legal charges has weighed on the shares, which have tumbled more than 50% this year.
The bank’s €1.75bn of 6% additional Tier 1 bonds, the first notes to take losses in a crisis, fell about 2 cents on the euro to 72 cents, near a seven-month low, according to data compiled by Bloomberg.
All but one energy producer in the Stoxx 600 Oil & Gas Index retreated, with Total and Royal Dutch Shell down more than 1.6% before this week’s OPEC meeting.
Among the 24 Stoxx 600 shares that rose, Lanxess surged more than 8% after the German chemical maker agreed to buy US rival Chemtura Corporation for about $2.1bn in cash. Chemtura soared 17% in early New York trading.
The CBOE Volatility Index of US stock swings jumped 14%, while the VStoxx Index for euro-area shares rallied 17%. The European gauge closed at its lowest since 2014 on Friday, a level that showed complacency among investors, according to Simon Wiersma, an investment manager at ING Bank.
The MSCI Emerging Markets Index declined 1.2%. All 11 industry groups dropped, paced by industrial and consumer-discretionary companies.
Taiwan Semiconductor Manufacturing, which makes chips for Apple, led shares of suppliers lower on concern of slower iPhone 7 sales.
Commodities
Crude oil was 0.8% higher at $44.85 a barrel in New York after a 4% slide on Friday. Algeria’s Energy Minister said Saudi Arabia, the world’s No. 1 oil exporter, has offered to cut production to January levels to help convince other major producers to agree output curbs this week in Algiers.
Nickel declined 1.7% in London, pulling back from a one-month high. Investors are awaiting the result of an environmental audit in the Philippines, which may close mines in the world’s largest supplier.
Copper retreated 0.7% from a seven-week high.
Gold was little changed, after climbing 2.1% last week. The precious metal’s price swings may become more severe in the final quarter owing to the US presidential election and an expected interest-rate increase by the Fed, according to Citigroup.
Currencies
Turkey’s lira led losses among emerging-market currencies and the nation’s stocks and bonds tumbled after Moody’s cut the nation’s credit rating. Currencies of commodity-exporting nations fell with oil, led by the Malaysian ringgit and Russian rouble.
The Philippine peso sank 0.5% and stocks dropped as investors were unnerved by Duterte’s policies on combating drug trafficking and efforts to boost economic and defense ties with China and Russia.
The yen strengthened 0.5% to 100.50 per dollar as investors sought havens. Former Japanese top currency official Eisuke Sakakibara forecast on Monday that Japan’s currency will slowly strengthen, saying in a Bloomberg TV interview that he wouldn’t be surprised if it reaches 90 by the end of next year.
Sakakibara, dubbed “Mr. Yen” for his ability to influence the exchange rate while a senior Ministry of Finance bureaucrat in the 1990s, correctly predicted the currency’s advance this year from near 120 to beyond 100.
The Bloomberg Dollar Spot Index was little changed following a 0.6% loss last week.
Bonds
Benchmark sovereign bonds rallied across most of Asia and Europe, with 10-year yields falling to minus 0.11% in Germany and minus 0.06% in Japan. The Bank of Japan last week shifted the focus of its monetary policy to managing yields and Governor Haruhiko Kuroda said Monday the shape of the yield curve will remain broadly where it is.
Treasuries advanced, with the yield on 10-year notes dropping two basis point to 1.60%. The US is selling $2bn of two-year securities on Monday, before sales of a combined $62 billion of five- and seven-year bonds later this week.
The Bank of England will begin a £10bn corporate-bond buying program on Tuesday. The yield on sterling corporate debt was about 2.23%, near the record low of 2.06% set last month, based on Bloomberg Barclays index data.
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