European stocks and US futures fell on Monday, as geopolitical tensions in Asia and US President Donald Trump's accusation that his predecessor Barack Obama wiretapped him overshadowed a flurry of M&A activity in Europe.

Deutsche Bank shares slumped more than 5 per cent after Germany's biggest lender said it needs to issue more shares to raise 8 billion euros of capital.

That dragged down European banking stocks and weighed on broader indices, trumping a rise in the shares of asset management firms after Aberdeen and Standard Life set the terms of their 11 billion pound tie-up.

Both stocks rose more than 6 per cent.

“The question is whether this will be the last capital hike or whether the bank will need more yet again in a few years," said Stefan de Schutter, a trader at Frankfurt-based Alpha, referring to Deutsche. “Until now, none of the restructuring measures have borne fruit.”

The FTSEuroFirst index of 300 leading shares and Germany's DAX fell 0.7 per cent, both hit by the 5.3 per cent slide in Deutsche Bank. The European banking index was down 1 per cent.

US stock futures pointed to a fall of around 0.5 per cent at the open on Wall Street which would take some of the shine off last week's rally to fresh record highs, particularly the Dow's leap above 21,000 points.

Japan's Nikkei lost 0.5 per cent, but that was the outlier in Asia. MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan rose 0.4 per cent, recovering from Friday's 1 percent fall, its biggest this year.

MSCI's benchmark global stock index was flat on the day.

Risk appetite also took a hit on rising geopolitical tensions in East Asia. North Korea fired four ballistic missiles early in the day, while a spat between China and South Korea over missile defence deepened.

Trump's accusation that his presidential predecessor Barack Obama wiretapped him during the late stages of the 2016 election campaign also cast a shadow over US stocks. Some investors view Trump's confrontational style as distracting the president from his economic agenda.

Fed hike a done deal

Investors opened the trading week almost certain that the Federal Reserve will raise US interest rates next week. Fed Chair Janet Yellen had on Friday all but confirmed market expectations, barring any sharp deterioration in economic conditions.

US money market futures, are pricing in about a 90 per cent chance the Fed will raise interest rates by 0.25 percentage point at its meeting on March 14-15, with another rate hike fully priced in by September.

But much of the market's move towards this level of certainty was made early last week, meaning it was already largely in the price of the dollar and US bond yields.

Attention will now shift to the US employment report for February on Friday, while investors are also awaiting more detail on Trump's fiscal plans.

“The rally (on Wall Street) has been mainly driven by promises made by President Trump to lower taxes, increase spending on infrastructure and the military,” Rabobank analysts wrote in a note on Monday.

“The importance of such pledges has increased as the Fed intends to raise rates further. What could possibly go wrong?"

Both the dollar and Treasury yields slipped on Monday, as investors took some profit from last week's moves and squared positions ahead of the expected rate hike.

The euro edged up to $1.0640, having dipped below $1.05 last week, and the dollar fell a third of one per cent against the yen to 113.60 yen.

China's yuan was little moved, fetching 6.8920 yuan per dollar in offshore trade after China cut its growth target for this year to 6.5 per cent, compared to its 2016 goal of 6.5-7 per cent. Growth in 2016 was 6.7 per cent.

The 10-year US Treasury yield dipped to 2.472 percent after hitting a two-week high of 2.521 per cent on Friday.

Oil prices fell on concern over Russia's compliance with a global deal to cut oil output and China's lower growth target. International benchmark Brent futures fell 0.8 per cent to $55.45 per barrel.

Figures released last week showed Russia's February oil output was unchanged from January, casting doubt on Russia's moves to rein in output as part of a pact with oil producers last year.

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