MORNING BRIEFING: Skepticism on European bank tests, considered not strict enough!!

[RTFX-Trading]

MORNING BRIEFING: Skepticism on European bank tests, considered not strict enough!!

What’s new:
Euro zone: Only 7 of 91 banks fail ‘stress tests’.
Euro zone: Tests not considered credible.
Asia: Asian Markets higher following European Stress Tests.
Forex: Euro reaches 7 week high versus Yen.
United States: Geithner says let tax cuts die, No new recession.
Japan: Your Party calls for a weaker yen, BOJ easing.

Today:


Rates in Asia and Indices:
EURUSD: 1.2943 - 1.2877.
USDCHF: 1.0546 - 1.0518.
GBPUSD: 1.5466- 1.5410.
EURJPY: 113.48 – 112.57.
USDJPY: 87.71 – 87.41.
DowJones: 10'424.62 +0.99%
NASDAQ: 2'269.47 +1.05%
S & P 500: 1'102.66 +0.82%
Nikkei: 9'514.69 +0.89%
Shanghai: 2'561.84 -0.40%
Gold: $ 1'192.95    
Crude Oil: $ 77.66

Comments:

The results of Friday's European banks stress tests, criticized for not being tough enough, found that just seven out of 91 European banks would need to bolster their balance sheets by a total of 3.5 billion Euros to withstand another recession.

Many portfolio managers and investors did not believe the tests were very credible as they did not focus on entire balance sheets. “The lack of a test for sovereign risk means the test was too soft and not credible,” said one portfolio manager from Europe. “To us the bank stress test results came out as a non-event. When you look at the results they didn't look very stressful,” commented another.

Evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity. Examples include bonds issued by Greece, whose debt obligations investors’ fear might not be repaid.

US investors have been showing a distaste for the European banking sector as data reveal the massive net selling that has occurred over the last two years.

US mutual funds cut their holdings of publicly traded European banks identified in the tests to just $12.1 billion from $29.8 billion, a whopping 59.2 percent decline in the last two years through May, according to Lipper, a Thomson Reuters company.

With the European banks successfully ‘passing’ stress tests, Asian shares rose on Monday, as the worst fears were laid to rest. The Euro hit a 7-week high versus the Yen, to 113.48, while against the US Dollar, the single currency rose to 1.2958, managing to extend gains from Friday, after upbeat corporate results and strong Euro zone data gave a boost to risk appetite.

Have a nice day,

Emman Xuereb
Trading Desk
RTFX Ltd
Risk Disclaimer