WEEKEND SUMMARY & THE WEEK AHEAD MONDAY 27TH OCTOBER 2014 Good morning, European investors took risk off the table on Friday, breaking a three day recovery, ahead of the results of bank stress tests and assets quality review published by the ECB this weekend. The results were actually leaked on Friday and showed that 24 banks had failed the stress tests under the fairly demanding adverse scenario, whilst 14 still failed under the less rigorous baseline scenario. The bad news was the number of banks that failed, but the good news was that the total capital shortfall was only €24.2bn a sum that could easily be found if it had to be and actually a lot of the banks that failed have already raised the shortfall. The asset quality review unearthed another €136bn in non-performing loans that were hidden in balance sheets across Europes banking sector, but other than that, it is a similar story to the above. The banks have largely made up for any shortfalls that were found and bank stocks are unlikely to see any great downside when the market opens this morning. Looking at the bigger picture, this could, at least in the short term, provide support for risk assets and the single currency. Other positive news comes from Ukraine, where early polls suggest a decidedly pro-western outcome for parliamentary elections. The elections didnt include Crimea and a couple of rebel held Eastern states, but the remainder seem to be banging the pro-European drum. A strong outcome should lend much more support to Petro Poroshenko from the international community, particularly when it comes to financing the pro-forma gas bill that Ukraine needs to pay Russia to keep the heating on this winter. In Russia, the government has approved laws to reduce the number of individuals and companies holding assets offshore - a practice that virtually every Russian with any notable wealth observes - The deoffshorisation is designed to bring wealth back into Russia, which has seen amplified outflows since the Ukraine conflict and subsequent sanctions, but will have everyone nervous about holding too many of their eggs in one basket - a basket into which they fear Putin may well dip his hand. In the UK, the BBC reported over the weekend that corporate profit warnings are at their highest level since 2008. According to a report from EY, 69 firms issued profit warnings last quarter, up from 56 a year before. The report doesnt speculate whether this is a continuing theme, but does point to a number of factors that have caused the slide, such as increased competition, emerging technologies and, for supermarkets, the general shift away from the big weekly shop. The FTSE remains about 7% off its September highs and didnt recover as much ground as Europeans did last week, thanks to Tesco holding things back. Meanwhile Bank of England member McCafferty wrote in the Sunday Times that we need to raise interest rates now, arguing that starting to raise Bank rate now makes it more likely that the increase required over the coming years to deliver our inflation target can be kept gradual and limited. Ian McCafferty is one of two leaning hawks on the panel and his words are reinforcement that were unlikely to see the vote change back to 8-1 next month, despite the market hiccup earlier in October. In Brazil, incumbent president Dilma Rousseff has won the tightest election race for decades to stay in office. The outcome is being reported as a business negative for Brazil as Ms Rousseffs Workers Party strives to tackle inequality over economic expansion through big business. Looking to the week ahead; the big news will be the Federal Reserves meeting and the likely announcement that QE will come to an end. The monthly taper has seen asset purchases reduce from $85bn per month at the end of last year to just $10bn this month. The question then falls to when an actual rate rise will occur and Janet Yellen will be keen to emphasise a cautious tone to try and comfort investors as they come down of their monthly QE fix. As well as the Fed, well see Q3 GDP readings from the US and a number of European countries. The UK economic calendar is particularly light, but there will still be opportunities for movement, as investors use the Pound to trade against other economic data and also month end flows on Thursday/Friday move things around. Have a great week.
Posted on: Mon, 27 Oct 2014 10:45:02 +0000
Trending Topics
Recently Viewed Topics
© 2015