European stocks and U.S. futures fell on Monday, as political tensions, a Deutsche Bank cash call and U.S. 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 6 % after Germany's biggest lender said it needs to issue more stock to raise 8 billion euros of capital.
That dragged down other European banks and overshadowed a rise in 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 %.
"Investors have refused to buy into Deutsche Bank’s restructuring plans," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
"Last year's restructuring has not achieved anticipated results and has harmed investors' confidence in the bank's ability to succeed."
Stefan de Schutter, a trader at Frankfurt-based Alpha, said investors were questioning "whether this will be the last capital hike or whether the bank will need more yet again in a few years".
The FTSEuroFirst index of 300 leading shares and Germany's DAX both fell 0.4 %, hit by the Deutsche Bank cash call. The European banking index was down 0.65 %.
U.S. stock futures pointed to a fall of around 0.25 % 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 % but was the outlier in Asia. MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan rose 0.5 %, recovering from Friday's 1 % 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 defense 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 U.S. stocks.
Fed hike a done deal
Investors opened the trading week almost certain that the Federal Reserve will raise U.S. interest rates next week. Fed Chair Janet Yellen on Friday all but confirmed market expectations, barring any sharp deterioration in economic conditions.
U.S. money market futures are pricing in about a 90 % chance the Fed will raise interest rates by 0.25 %age 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 U.S. bond yields.
Attention will now shift to the U.S. 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.
Having edged higher in early trades, the euro fell 0.33 % on Monday after former French prime minister Alain Juppe said he was not prepared to be a candidate in the country's presidential election. Investors worried that made a victory by far-right, anti-euro candidate Marine Le Pen more likely.
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 %, compared to its 2016 goal of 6.5-7 %. Growth in 2016 was 6.7 %.
The 10-year U.S. Treasury yield dipped to 2.472 % after hitting a two-week high of 2.521 % 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 % 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.