Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Stock Markets Calm Ahead of Bank Stress Test Results

Stock-Markets / Financial Markets 2009 May 06, 2009 - 04:56 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleMarkets paused for reflection and traded in a narrow range yesterday finishing neutral after their recent bout of bullish fireworks. The S&P 500 managed to just hold onto the 900 handle. Oil stocks struggled on a fall in crude prices while Disney shone on better than expected numbers. This was despite more upside data surprises this time from the services ISM and a cautiously upbeat testimony from Fed Chairman Bernanke. However news that Bank of America may require $35 billion in additional capital has futures in the red this morning.

Today’s Market Moving Stories

  • Bank of America has been deemed to need an additional $35bn in capital, according to the results of a government stress test, a source familiar with the results said on Tuesday. The FT reports U.S. regulators are set to impose tough conditions on banks that wish to repay TARP monies making them prove that they can issue debt without government banking / guarantees. This news will pressure European banks at the open. As I write I note both UBS and Barclays are down early doors. The Telegraph is reporting that Barclays are considering a rights issue. In contrast French bank BNP is up 8% at the off after topping analysts forecasts.
  • The most significant comments overnight were from San Francisco Fed President Janet Yellen, coming too late for the US close. She noted that the necessary inventory correction may be “quite far along” with recent “hints” of stabilisation in housing. Still, the recovery will be “frustratingly tepid” when it starts. She predicts that the ongoing deterioration in the US jobs market understates unemployment, noting that the “under-employment rate” has risen sharply. She continues to fear deflation is more likely than inflation, but it would not be a severe bout.
  • British consumer morale enjoyed its biggest monthly boost last month in two years as people sensed the worst of the recession may have passed. The Nationwide Building Society’s consumer confidence index rose to 50 last month from 42 in March. The eight-point rise was the most marked improvement in the index since May 2007 while the level was the highest since December. The figures tally with a GfK survey last week which found consumer confidence recovered in April to its highest level in a year.
  • Standard and Poor’s rating agency will downgrade all German Landesbanks by one notch today. The move is said to increase the political pressure for consolidation in the sector.
  • ECB sources this morning say a modest interest rate cut (1/4%) this Thursday may be flanked with a commitment to keep rates low for an extended period. The odds are low that the Council will agree on more controversial non-standard measures like the purchase of government bonds or private sector paper, given the difficulties involved and the lack of consensus so far.
  • Peer Steinbruck, Germany’s accident-prone finance minister, did it again. Yesterday in Brussels he launched another attack on tax havens by listing the tax shelters as follows: Luxemburg, Liechtenstein, Switzerland, Austria and Ougadougou. Unlike the former three the latter is not a country, but the capital of Burkina Faso, one of the poorest countries in the world. More importantly, the latter is not a tax haven. Steinbruck seems to be making the point that those small European countries are banana republics.
  • Some people are born to be customers! Brooklyn cab driver convinces you he is a hedge fund managers, steals $20 million.
  • The new game in town - Shoot the Banker.

Last Word On Those Annoying Stress Tests
I must start with a broad impression. This whole stress test exercise is probably the most ridiculous thing that the government has done through this entire crisis (and the field is crowded!) Let’s think about what exactly the government is doing here. Financial regulators oversaw the most colossal failure of regulatory policy in the history of the world in this decade. The entire financial system was allowed to run amok. And regulators stood by and watched. But now regulators have decided that banks should go from being far undercapitalised to far overcapitalised in the middle of an economic recession and financial crisis, i.e. at just the time when it is really expensive (if not impossible) to raise capital. In a deleveraging financial system, the notion of forcing banks to drastically increase their capital ratios at the bottom of a recession based on what could happen if the recession gets even worse is stupendously ill-advised in my view. If there are banks that are insolvent, then by all means have the FDIC take them over. But running this hypothetical exercise strikes me as a monumental waste of time and energy.

The stated purpose of the stress tests was to increase confidence in the banking system, but it feels like the end result has been the opposite. Financial conditions are getting better (having nothing to do with the stress tests, regardless of what Treasury might like you to believe). In any case, here we are, the regulators are delivering the final results to banks today, with a public release due out late Thursday afternoon. The latest leaks suggest that the number of banks that will be forced to raise capital has gone from 2 or 3 to 4 to 6 to now 10.

But the really important question is whether banks are going to be able to coerce private holders of preferred paper to convert to common equity or, better yet, whether banks might be able to raise new private money in the next six months. If the answer to both of those questions is no, then banks are going to be driven into an even tighter bear hug with Uncle Sam, and I can predict unequivocally that such a result would be bad news for the financial system and for the economy.


  • Luxury carmaker BMW has posted a smaller than expected loss of €152 million this morning.
  • Tullow Oil announced this morning that the Ngosa-1 well exploration well, which is located in the Butiaba region of Uganda, has encountered good quality Kasamene-type oil bearing reservoirs in a down-dip location at the oil water contact.
  • United Drug released first half results this morning and delivered a 6% increase in revenue on a constant currency basis to €850.9m, slightly below consensus estimates. Operating profit increased 5% yoy to €21.9m, with adjusted EPS slightly below expectations at 10.63c. The packaging business weighed on earnings as did Sterling. Management expect the group’s pre-tax profits for the year to September 2009 to at least be in line with the prior year.
  • CRH has issued an interim management statement indicating that poor weather conditions and a deteriorating economic environment impacted its performance in the first four months of the year. As a result, profits in the first half of the year are likely to be below previous expectations.

Data Ahead
There have been some signs in initial jobless claims data that the worst job losses are behind the US economy. Yet jobless claims represent the flow into the jobless pool. The ADP (13.15 today, consensus –645k) and nonfarm payroll reports include this flow in as well as the flow out. A slowing of job cuts comes well before the hiring begins and so even if the pace of job cuts is easing the payroll numbers will stay elevated for a while, even if the worst is over.

Earnings from Unilever, CBS, Nvidia.

And Finally… The Original Bankers Song

Disclosures = None

By The Mole

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

© 2009 Copyright PaddyPowerTrader - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

PaddyPowerTrader Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules