Forum
Posts by "passion trader"
57 Posts Total by "passion trader":
2
Posts by Anonymous "passion trader":
Pulled between good data (positive GDP, construction, inflation data and retail sales surprises) and dovish rate expectations.
Consumer consumption may be stronger than expected due
Continued inflation adds inflationary pressure for a rate increase coming soon.
While tied to Europe trade the GBP less likely to suffer from EU travails than the EUR or CHF
Policy makers believe slack in economy will keep inflation in check despite better growth, and inflation remaining over the maximum target 3% for the past 5 months.
GBPUSD nearing strong resistance at 1.5600 zone, which has resistance points of its 61.8% Fibonacci level at 1.5611, its 50 day SMA immediately above.
Pressure on risk appetite to benefit the #1 safe haven Yen due to
Suspiciously lenient EU bank stress tests to boost risk aversion and safety currencies like the JPY, as the tests raise the likelihood of more negative surprises from EU banks
Warnings from Bernanke on risks of slowing US growth
Waning affects of US earnings season as good results now priced in
Other potentially bearish market movers for the coming week as noted above
Rising Yen over the past year threatens Japanese exports and thus economic recovery. BoJ verbal intervention becoming more likely as rising JPY hurts exports
Improving spending and growth data balanced by deflation threat
That would benefit safe haven currencies like the USD, JPY, and to a lesser extent, the CHF
Upward momentum and lack of negative news might allow risk assets some near term upside, but the added uncertainty about EU banks from the test results will need to be priced in at some point soon, especially if risk assets approach stronger resistance.
Positive US earnings season already priced in, thus its influence will either fade if good, or boost the USD if the tone turns more disappointing and hurts risk appetite.
Chinese banks that made loans to government building authorities for new projects may lose 23% of funds loaned per a Bloomberg report.
Fridays advanced US Q2 GDP is the major scheduled event for the USD, and could either confirm the picture of slowing growth or provide relief from the prevailing pessimism
Risk assets are at or near strong multi-month resistance. If that strong resistance holds, the USD is likely to benefit as a safe haven currency.
Struggling US economy could limit USD gains despite declining risk appetite. USD needs improving fundamentals relative to others, especially the EUR, to sustain a rally.
Slowing EUR short covering means EUR gains must come on continued rising risk appetite and/or fundamental improvements.
The above comments about the USD apply with the reverse, bearish affect on the Euro.
Worries over EU banks' stress tests
Most likely to pass but there are fears that tests are not stringent enough
MADRID: Several of Spain's 18 savings banks have failed tests to see how they would cope with worsened economic conditions, a newspaper reported yesterday.
Regulators in Europe have been looking at how banks would withstand another recession in an exercise similar to one in the United States last year which helped restore bank sector confidence.
The tests on 91 lenders from 20 European countries, which use scenarios including declines in the value of sovereign debt they hold, were due at 1600GMT (midnight Singapore time) yesterday .
'The rally we've seen in the banking sector on Thursday signalled that the stress test results have been well anticipated, thanks to all the comments already made by officials' said IG Markets analyst Philippe De Vandiere. 'But I think that even if the tests are good, investors will take it as an opportunity to book profits after the strong run-up to the tests.'
Although most of the banks are expected to get the all-clear, there is a great deal of market concern that the tests are not as stringent as they should be, or even as rigorous as those in the US a year ago.
The tests had been expected to show that some of the unlisted savings banks in Spain would need a capital injection under certain scenarios, El Pais newspaper said citing financial sources.
It said a small group of savings banks would need more capital if economic conditions were to worsen sharply and there were sovereign debt crises in several countries.
Goldman Sachs said its survey of investors showed they expected 10 out of the 91 assessed banks to fail.
The poll of 376 respondents, including hedge funds and long-only investors, also showed European banks were expected to raise over 37.6 billion (S$66 billion) in capital after the tests.
Other analysts looking at which banks might need new capital expect five to 10 banks to come up short on the tests, although none of Europe's big names is expected to flunk.
'It's like pulling an elastic band to see at what point it breaks. It depends how hard you pull,' said Mr Alessandro Frigerio, a fund manager with RMJ SGR in Milan. 'The stress tests serve above all to remove uncertainty, it's a kind of reassurance, transparency towards the market.'
The test scenarios include a look at how the banks cope with a moderate recession this year and next, and the same scenario with additional losses on government bonds.
Any bank whose Tier 1 capital ratio falls below 6 per cent by the end of next year will be regarded as failing the test, according to documents seen by Reuters on Wednesday. Banks would be expected to raise funds to make up the capital shortfall.
Apart from Spain's regional savings banks, known as cajas, the hunt for weak spots in European banking has also focused on regional German lenders, known as landesbanks.
Mr Manfred Weber, the head of the Association of German Banks, told local radio he was confident that German banks 'all in all' would perform well at the tests. 'I also believe that the European banking system, two-thirds of which are included in this test, will present a better picture than many expected before,' he said.
With the latest data showing signs of a strengthening recovery in Europe, banks could find themselves in a healthier position than expected.
A stress test on US banks early last year helped draw a line under worries about the sector there. European regulators are aiming to achieve the same. But there have been clear splits in the 27-nation European Union about how to model the test and how much to divulge, stoking worries that it will be less credible.
'The tests should have been done two years ago... like the Americans did, full-on during the crisis,' said Mr Marc Renaud at fund manager Mandarine Gestion.
REUTERS, ASSOCIATED PRESS
Friday, 23rd July 2010
BANKING
VICTORIA BATES
EUROPES much-vaunted stress tests have met with deep scepticism in the City ahead of the publication of the results today, with concerns rife that the test criteria will prove too lax to settle anxieties over the health of the regions banks.
Market observers yesterday levelled criticism at the Committee of European Banking Supervisors for watering down the tests. Banks have been asked to forecast their extra funding needs under a range of scenarios, including a double dip recession and huge losses on government bonds.
Investors baulked at the likely lack of comprehensive disclosure on banks exposure to sovereign risk in the wake of the Greek crisis. They also said the use of core tier one capital ratios as a basis for the tests would have been better than the less rigorous standard of a tier one capital ratio of six per cent.
Officials from the affected countries have insisted that the majority of banks will pass the tests comfortably, with the exception of nationalised German lender Hypo Real Estate.
Emily Adderson, manager of the Henderson global financials fund, said the template for the tests looked over-simplified. Most of the banks appear to have passed, but theres a feeling that if you are going to have these tests, there needs to be an element of cleansing to them, she said.
David Sayer, global head of banking at KPMG, added that the tests need to be, and be seen to be, robust enough to expose obvious weaknesses in some banks positions there will have to be some relative underperformers.
Last night, officials were unclear on how much detail banks should be forced to give on their sovereign debt holdings.
Spain: The Spanish Senate, in a preliminary budget vote, rejected today by 217-117 the government's proposed spending ceiling for the 2011 budget. Earlier, the lower chamber of the legislature had barely passed the proposal by an unsustainable plurality of a single vote and then only because the pivotal Catalan nationalists decided to abstain for tactical reasons - with a warning that their final vote on the budget will be negative if their demands for increased Catalan autonomy (already rejected by the Constitutional Court) are not met. The Catalan autonomy issue is big. Spain is being forced to choose between a major constitutional crisis and a renewed major fiscal crisis.
Hungary: The new government over the weekend told the IMF/EU that it will not continue the IMF-prescribed austerity program in 2011, placing a huge question mark on the country's $150 billion foreign bank debt. Almost all of that debt is owed to European banks ($38 billion to Austrian banks). Hungary's move was dictated by domestic political realities that have crystallized after 2 years of IMF austerity. The IMF cannot afford to back down and continue lending to Hungary without austerity conditionalities because doing so would collapse the IMF's negotiating posture vis--vis Greece and the rest of the European South. But without continued IMF lending, the position of European banks - especially Austrian banks - that own Hungarian debt becomes untenable.
Ireland: The stabilization package begins to unravel, posing new threats to the country's $867 billion foreign bank debt (of which $634 billion to European banks). Echoing arguments made by the Hungarian government, one of the governing coalition parties said in parliament that it is not "politically feasible" to continue the levels of austerity demanded by the European Central Bank. On cue, Moody's downgraded Irish government debt to Aa2 from Aa1. Moody's explained that "today's downgrade is primarily driven by the Irish government's gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability."
AN UNINTENDED CONSEQUENCE OF THE FINANCIAL REFORM BILL: It seems that the financial reform bill that President Obama is about to sign contains a liability clause aimed at the rating agencies that would allow investors to sue them for failure to conduct adequate investigations into the assets that they rate. If so, expect the ratings of European sovereign debt to take further hits going forward.