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Stocks slide as Deutsche Bank jitters boost yen

Hong Kong - What’s set to be the best quarter of the year for global stocks is ending on a sour note as concern about the financial health of Germany’s biggest lender rattles investors, fueling demand for haven assets including the yen, gold and sovereign bonds.

Banking shares led losses on the MSCI All Country World Index as Deutsche Bank tumbled to an all-time low, weighed down by a Bloomberg News report that some hedge funds have cut their exposure to the lender.

The Stoxx Europe 600 Index fell to an eight-week low and S&P 500 Index futures declined. The yen strengthened versus all of its major peers and most emerging-market currencies weakened.

Gold rose for the first time in four days and the yield on benchmark U.S. Treasuries sank to the lowest level in three weeks.

Deutsche Bank’s woes are unsettling markets just as the risk of an oil price collapse recedes following an OPEC agreement this week to cut crude output.

The bank’s shares have more than halved in value this year amid speculation it will struggle to pay legal bills tied to past misconduct, including a request for $14bn from the US Department of Justice. The International Monetary Fund said in June that the German lender may be the biggest contributor to systemic risk among the largest financial companies.

“Deutsche certainly weighs on sentiment, and the declines are concerning,” said James Woods, a strategist at Rivkin Securities in Sydney. “Being named the number one bank for global systemic risk, it’s entwined with everyone.”

Stocks

The Stoxx Europe 600 Index slid 1.5% as of 09:11, paring this quarter’s advance to 2.4%. Deutsche Bank tumbled as much as 8.1%.

The MSCI Asia Pacific Index dropped 1%, with financial stocks accounting for almost a third of the decline.

“Following the report about clients moving to reduce exposure on Deutsche Bank, the possibility of other financial institutions facing similar moves has surfaced,” said  Hideyuki Ishiguro, a senior strategist at Daiwa Securities in Tokyo. “Investors, especially foreigners, are moving to cut down on positions in the face of risks arising from European banks.”

Japan’s Topix index and Hong Kong’s Hang Seng Index fell more than 1.5%, leading losses among Asian benchmarks. The latter remains the region’s best performer of the quarter with a 12% advance.

The Shanghai Composite Index rose 0.2% before financial markets in mainland China shut next week for National Day holidays.

India’s S&P BSE Sensex index fluctuated following a 1.6% drop in the last session that marked its biggest loss since June. The nation said Thursday it had attacked terrorist camps in Pakistan, escalating tensions between the two nuclear-armed neighbours. The countries have fought three wars since they split from each other in 1947.

Futures on the S&P 500 Index were down 0.5% ahead of US consumer spending data for August and a speech by Federal Reserve Bank of Dallas President Robert Kaplan, who may touch on the outlook for US monetary policy.

Currencies

The Bloomberg Dollar Spot Index rose 0.1%, after advancing 0.2% in the last session. The yen strengthened 0.2% and the rand slumped 0.7%, the biggest loss among major currencies.

“The appetite for riskier assets has weakened on worries over euro-zone banks,” said Min Gyeong-won, a currency analyst at NH Futures in Seoul.

Commodities

Crude oil fell 1.1% to $47.31 a barrel in New York, after gaining more than 7% over the last two days. While Wednesday’s agreement among Organisation of Petroleum Exporting Countries imposed an overall production cap on the group of 14 oil producers, it didn’t assign individual limits - that was left to a committee that will report back at OPEC’s next meeting in November.

“It’s good that OPEC is going to limit production but sticking to the deal is the big headwind facing the organization,” said David Lennox, a resources analyst at Fat Prophets in Sydney.

“We’re yet to get the exact details on which countries will contribute the cut, but the Saudis could handle that on their own without too much hassle.”

Industrial metals were mixed, after the LMEX Metals Index ended Thursday at a one-year high. Copper fell 0.2% in London and nickel rose 1%.

Gold added 0.3%, having dropped 1.3% over the last three days.

Bonds

The US 10-year Treasury yield declined two basis points to 1.54% as comparable yields on sovereign debt in Australia and New Zealand also dropped to three-week lows. The rate on similar-maturity notes in Germany fell three basis points to minus 0.15%.

The yield on Japanese securities due in a decade increased by one basis point to minus 0.08% before the central bank announces details of its bond-buying plans for October.

The monthly statement, due at 10:00, will provide some insight into where the authority wants rates to be after it said last week that monetary policy would be used to shape the yield curve.

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