Stocks and Treasury yields started the day lower after news broke on Sunday the Deutsche Bank, the largest German bank, is going to close down their equity trading division and layoff 18,000 employees from their global operations starting today. Deutsche Bank has been struggling with profitability and holds over $70 trillion of derivatives on its book. Should Deutsche Bank fail, the repercussions to the global financial systems will be significant.
The economic calendar is rather light until Jerome Powell, Chair of the FOMC, appears at the House and Senate starting on Wednesday, along with the meeting notes from the June FOMC meeting. Investors will be looking for clues as to the Fed’s monetary policy plan going into their July 31st meeting.
June’s Consumer Price Index (CPI) is due Thursday and the Producer Price Index (PPI) is due on Friday. Since the Fed largely bases their monetary policy decisions on the annualized change in consumer and producer prices, investors hoping for a rate cut will be looking for both indices to fall. Based on the CPIs historic track record following the Money Multiplier, investors may get an inflation surprise to the upside.
Stocks closed the day lower in a rather quiet day of trading. Morgan Stanley is warning their clients to cut their equity allocation, but the market ignored their warning. Treasury yields were also slightly lower on the day as three long-term Treasury bond auctions are scheduled over the next three days. Investors are anxiously watching how the market responds to these auctions.
Physical gold closed below $1,400/oz ahead of Powell’s upcoming appearances at the House and Senate and the upcoming CPI and PPI numbers for June. Should inflation shoot higher, this would be a risk on move for gold, but if inflation falls, expect gold to fall.