Stock markets have started the week in a tailspin with the DAX down 1.4%, the FTSE down 1.0% and US index futures down 0.5%. Asia stocks were also lower with the Hang Seng down 1.5% and the Nikkei down 1.25%.
The European banking sector has been dragging markets down the drain with Deutsche Bank (NYSE:DB) under the most pressure. Over the weekend German Chancellor Merkel indicated she opposes bailing out German banks, raising particular concerns about Deutsche Bank from whom the US Justics department is seeking $14 billion in fines. I don't think the US government is interested in starting another global banking crisis and some kind of deal will be reached eventually that leaves the bank intact, but this reminds the street of the precarious position of banks in Europe, particulary Italian banks.
Oil is rebounding today, with the long awaited Algeria oil conference being held through Wednesday. Focus is on the side discussions between OPEC producers and Russia over how to stabilize the market and manage production.
With Iran, Libya and Nigeria still looking to restore lost production, the main force for cuts has been Saudi Arabia. The Saudis have been sending mixed messages. On Friday the Saudis suggested we probably would not get a deal this week but the foundation could be laid for further discussions later this year, sending oil down sharply. Over the weekend the Saudis suggested it would be willing to cut production to January levels.
Anything can happen and there's a lot of attention on this meeting. We could see significant swings in oil potentially in both directions over the next several days. This could also impact trading in energy stocks plus oil sensitive currencies like CAD, NOK, RUB and MXN.
MXN, along with US stocks, may also be impacted by tonight's first US Presidential Debate. Latest polls have the race as a dead heat with Hillary Clinton's lead over Donald Trump dwindling from double digits to nothing over the last few months. The Mexican peso has reflected this shift, weakening dramatically relative to USD over Mr. Trump's antagonistic policies toward Mexico.
Stock markets on the other hand have completely ignored the possibility of a Trump victory. Markets were also dead wrong about Brexit and therefore are vulnerable to a surprise readjustment. Should Mrs. Clinton fail to slam the door tonight, political uncertainty in the US could have an increasing impact on trading over the next six weeks, exacerbating usual seasonal volatility.