Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis 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

Stock-Markets

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.

Equities

  • 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
PaddyPowerTrader.com

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 http://www.MarketOracle.co.uk - 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