Market Commentary | Energy stocks the biggest losers of the day

Oil and the Debate

That’s a capital T and a capital D, because the first presidential debate is all over the markets at the moment. Without going into the specifics (plenty of good political blogs out there) let’s focus on the outcome – markets liked Hillary Clinton and rallied significantly, erasing Monday’s losses. The Mexican peso, which has become the closest thing to a Trump-barometer due to the Republican’s vow to renegotiate NAFTA, recovered strongly against the dollar. The ensuing price action suggests, however, that the debate is only an episode rather than a game-changer.

That’s enough to get markets excited though - tech stocks lifted US bourses across the board, as heavyweights Microsoft, Cisco and Alphabet led the charge. Positive consumer confidence data – an index for September reached a nine-year high – also gave a boost to discretionary stocks. Travel stocks were particularly in demand and a range of stocks including Royal Caribbean Cruises, Expedia, Tripadvisor and Carnival were all up by at least 3%.

Earlier, Asian equities rebounded following a dismal start to the week on the back of the debate’s outcome, but Europe was unable to make any tangible headway with most bourses slightly in the red. Financials were once again performing negatively on the day, even as the Deutsche Bank haemorrhage seemed to subside slightly, with the German bank’s stock down ‘only’ 0.5% after making some intraday gains.

Investors in Europe are still very wary of the situation in financials though. Yields on core European sovereign benchmark bonds have reached two-month lows on a renewed bid for safety, with 10-year Finnish bonds and 9-year bonds issued by the European Stability Mechanism (the Eurozone’s financial backstop) going negative for the first time.

But the biggest losers of the day were energy stocks as – you guessed it – the possibilities of a coordinated OPEC production cut and/or freeze soured. Iran said, quite bluntly, that now “is not the time for decision-making” and that they “will try to reach an agreement for November”. The informal talks are scheduled for Wednesday afternoon, but the latest developments seem to indicate no chance of a positive outcome for oil bulls.

Fast forward to this morning’s session and it appears there is some relief amongst European energy and resources stocks as they are currently pulling major indices higher, following the US’s positive performance. Oil has also stabilized and is trading just shy of $45.

Wells Fargo Under Pressure

A regulatory probe recently exposed that thousands of Wells Fargo employees were opening thousands of bogus customer accounts – potentially as much as 2 million – in order to meet sales targets. The bank has committed itself to remove the sales targets come October 1st, but top management has come under significant scrutiny, and has to answer for the why and the how of such malpractice.

In the most recent developments, CEO and Chairman John Stumpf said he is ready to forgo more than $41 million in stock options and salary in a bid to retain his job and show some goodwill on management’s part in the face of severe political backlash. To put that into perspective, Stumpf received a salary of $19.5 million in 2015. Another senior figure from Wells Fargo, Carrie Tolstedt, could lose up to $19 million in stock options. Tolstedt, who retired earlier this year, oversaw the retail unit during the years in which the malpractice ran.

The bank has already paid $185 million and fired 5,300 workers in the wake of the scandal. Some ex-employees are suing Wells Fargo over unfair dismissal, claiming they were fired because they refused to give in to the demands of their superiors to open bogus accounts. All In all, it looks like it’s going to be a rough few months ahead for Stumpf, who might consider taking a holiday, possibly to Mars on Elon Musk’s “Heart of Gold”.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.