Greetings,

Let’s begin with the UK where the Bank of England once again shifted the inflation forecast lower. The expected time of the BoE’s rate hike has been extended sharply as a result.

Source: ?@pdacosta, @BV

Moreover, the market is now pricing in a material probability of a rate cut.

Source: @pdacosta, @BV

At the same time, HBOS says that UK house prices are growing at nearly 10% per year -an interesting dilemma for the BoE. The reason for the house price increases is mostly lack of supply, as the country faces a housing shortage.

Source: Investing.com

Turning to Germany, the nation’s factory orders report was rather disappointing. Draghi will be jawboning the euro lower to help the situation. Given the recent weakness in the US however, it’s not clear it will work this time. More on the euro shortly.

Daily Shot’s Matt Garrett (@MattGarrett3) also brought up the fact that Germany should be watching the deteriorating situation with Deutsche Bank. Here are some market data points on the bank.

1. Share price (US listed).

Source: Ycharts.com

2. Preferred securities.

Source: Yahoo

3. Coco (contingent convertibles).

Source: @Sunchartist

4. CDS spread.

Source: @Sunchartist

Given Deutsche Bank’s significant global presence, this needs to be addressed quickly. The markets are telling DB it needs to raise more capital.

Note that while the situation with DB is troublesome, a number of other global banking groups are under pressure. The markets are pricing in weak demand for credit and investment banking activities. Here is an example: Credit Suisse had its first loss since 2008 – a short-seller’s delight.

Source: Google

Will this unease with the banking sector performance put more pressure on the broader markets? Is there risk of a liquidity event?

Speaking of bank shares here is the Greek banking index hitting new lows this week.

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