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Markets Rebound Following Economic Data, Deutsche Bank Settlement Speculation

Global markets seesawed throughout the day before ultimately gaining as investors digested various economic data while keeping an eye on the unfolding situation at Deutsche Bank.  At the onset, tensions were high as an increasing number of clients continued to withdraw funds from DB, spreading worldwide concern over the future stability of the company and the overall financial sector.  In the U.S., consumer spending for August reported a decline for the first time in seven months, coming in flat after July’s 0.3% rise.  Personal income similarly dropped MoM, falling in line with expectations of 0.2% for August.  Additionally, the Atlanta Fed updated its projected annual growth rate to 2.4%, down from 2.8% earlier this week, and suggesting that an overheating of the economy would not be likely in the short term.  Dallas Federal Reserve Bank President Robert Kaplan echoed a similar tone to the public today when he stated his belief that the central bank could continue to be patient when raising interest rates despite unemployment reaching targeted levels.  Fed fund futures currently point towards a 57% chance of a rate hike by year end, while a selloff in bonds put the 10-year Treasury yield near 1.60%.        

Abroad, Asian stocks finished lower on the day, dragged down by the fear of financial contagion and disappointing Japanese CPI data that revealed core consumer prices down 0.5% YoY in August, matching the lowest level since March 2013.  European markets rebounded as soon as rumors surfaced that a potential settlement had been reached between Deutsche Bank and the U.S. Department of Justice.  The reported settlement is for $5.4 billion, significantly below the $14 billion figure initially requested.  The news popped the bank’s stock up roughly 15% and provided a breath of fresh air for concerned investors and equity markets.  Overall, European stock markets finished marginally above even on the day, with euro zone inflation and unemployment figures being reported in-line with expectations at 0.4% YoY and 10.1%, respectively. And after initially declining as much as 0.6% earlier in the day, the euro rose 0.1% to $1.12.

All three major U.S. stock indexes are up near 1% on the day, while Treasury yields/swap rates are up 3-5 bps across the curve.  Oil prices hovered near flat on the day, while finishing up 8% for the month with WTI crude trading at $48/barrel and Brent crude at $49/barrel.

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