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Stress Tests Prove not to be Overly Stressful

Stress Tests Prove not to be Overly Stressful

Good morning all, and welcome to half term and the last week of October. Over the weekend we saw the results of the ECB’s stress tests released to a huge lack of fanfare, possibly as it was done on a Sunday and also because the results were leaked last week. The results showed that 25 of 130 banks failed but have 9 months to remedy the situation. All four of the UK’s major banks passed as did all those from France, Spain and Germany. The major issues surrounded Italian banks, where 9 of 15 banks have a capital shortfall, and Greece. On the plus side, Greece is already managed by the European Commission’s restructuring plans and the total cumulative shortfall for all banks is (only) €10bn.

Some analysts have been quick to point out that this means the European banking crisis is over. This could be premature. It has offered a lift to risk appetite which is something that Sterling nearly always benefits from. We should now see with these results whether European banks start to lend again and help prevent further declines in inflation.

The main data today are German IFO numbers which are expected to decline again and in doing so push Germany towards a technical recession. We also have PMI from the US and home sales. The markets are looking towards the Fed’s monetary policy announcement at the end of the week although this is merely likely to confirm that US rates will not rise until early 2016.

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