Bank stocks smashed!

GURU WISDOM

“Although it’s easy to forget sometimes, a share is not a lottery ticket, its part ownership of a business.” – Peter Lynch
 

MARKETS

It was a cross-asset risk off move on Monday that accelerated what had already been a rough month for stock markets. The allegations against big banks dragged financial shares lower. At the same time, rising coronavirus cases are set to disrupt the economic reopening in Europe with the UK potentially in line for new nationwide lockdown restrictions. As such travel stocks saw some of the biggest declines.

Having fallen last week, the US dollar was back in demand as a haven amid the wider risk-off mood, with only the Japanese yen – another haven – rising more. USD/JPY slid sharply to 6-month low before reversing just ahead of 104. EUR/JPY struck a 2-month low.

The strength in the greenback saw precious metal prices fall sharply, though both gold and silver still just about stayed within the wide trading ranges of the past two months. Oil prices dropped 3% on the implications for oil demand from lower travel if new coronavirus restrictions are implemented.

Cryptocurrencies fared badly in the rout. Ethereum lost nearly 10% before forming a base near $330 while Bitcoin dropped heavily but managed a close above the key $10,500 level.
 

Bank stocks

There were some hefty declines among European bank stocks on Monday following the release of evidence of further money laundering activities. Deutsche Bank shares plummeted -8.75% while UK banks Barclays and HSBC dropped over 5%. Deutsche Bank made up over half of the leaked suspicious activity reports filed with the US Department of Treasury’s financial crimes enforcement network (FinCEN). Five banks specifically – DB, HSBC, JP Morgan, Standard Chartered and Bank of NY Mellon are alleged to have been involved in multi-billion transactions of dirty money. 
 

No haven in metals

The price of gold and silver failed to live up to their status as havens in another big market drop. This should now come as little surprise. Having performed strongly this year, gold and silver have seen some excess speculation and weak hands will tend to take profits quickly in any move lower. Also, the US dollar has become the preferred haven asset when investors want the certainty of liquidity in market sell-offs. That necessarily means metals valued in a higher dollar lose value in these scenarios.