Russian Rate Hike and UK Banks De-stress
We actually have some interesting developments overnight as Russia stole all the headlines with announcements out of the UK coming a distant second.
At 1am Moscow time, the Russian Central Bank announced that it would raise its key interest rate from 10.5% to 17% and that this level would be effective as of today. This is the 6th rate hike of the year and obviously such a move is no normal procedure. The Ruble has lost 44% of its value this year due to a slump in oil prices and US and European sanctions. The Russian economy hasn’t seen such levels since 1998 when the rates were higher than 100%. There are fears that this will further hurt the economy but with recession around the corner, this move has been one to prevent full-scale economic collapse brought on by the collapse of the Ruble.
In the UK, there has been the announcement of the stress tests to much less fanfare than its European counterparties. Of the eight banks that were tested, only The Co-operative failed with the RBS and Lloyds just passing. This contained no shocks as The Co-Op had already submitted new plans to strengthen including plans to cut its balance sheet by an additional $5.5bn but does not expect to be profitable until 2017. Lloyds and RBS had already taken action so did not need to submit any new plans.
HSBC came top of the class, followed by Santander, Standard Chartered Barclays and Nationwide. Mark Carney took the opportunity to laud this situation, commenting on how resilient the banking system now is.
Lots of news out of the UK today including a speech from Mark Carney, CPI and PPI. We also have Economic Sentiment out of Germany and then building permits and housing starts out of the US.