CURRENCY MARKET REPORTS
Majority approves the stress tests
Posted in Currency Update by Andrew Belles on July 27, 2010
Good morning. Research by the PDSA reveals that 35% of British dogs are overweight. Four years ago, when the previous such tests were carried out, only 21% were overweight. President Obama has blamed BP, saying its petrol sales have made it too easy for pet owners to drive around instead of taking their dogs for a walk. The CEO of BP has accepted responsibility for the epidemic of corpulent canines and has volunteered to retire. Mr Obama is outraged that he will be allowed to get away with anything less than public dismemberment. And even that would be too good for him.
There has been considerably less outrage over the stress tests carried out by European banks, despite surprisingly generous hypotheses for some respondents. Apparently the ‘worst case’ scenario for Greek banks was a 2% fall in house prices. Austrian banks did not even have to consider a property slump; their doomsday scenario involved a 2.7% price rise. The most stringent tests seem to have been those for Spanish banks, who had to model a 28% fall in house prices and a 61% decline in land valuations. Interesting, then, that it was the regional Spanish banks who came off worst and that the Austrians all passed. It is interesting also that Deutsche Bank has not yet come clean about the size of its exposure to sovereign risk. Only the government bonds on its trading book have been stress-tested; anything intended to be held to maturity was not included. Presumably it believes it can only lose money on a creditor default if the asset is revalued on a daily basis.
Nevertheless, as observed, the test results have done the euro more good than harm. It has not strengthened a great deal since the announcement on Friday evening but it is about a cent and a half better against the US dollar, a cent higher against the Swiss franc and half a cent firmer against the pound. No cigar, then, but nor has it any reason for embarrassment.
The only economic data on Monday were those for new home sales in the United States. After a -36.7% monthly fall in May, caused by the expiry of a tax break for buyers, sales jumped by 23.6% in June. Investors had been expecting an improvement but had in mind something more like 5%. Perhaps surprisingly there was no reaction whatsoever by the dollar. Poor figures in the past have tended to send it lower but good ones clearly have less effect.
There is only slightly more going on today. Gfk’s index of German consumer confidence has improved from 3.5 to 3.9 and Switzerland’s consumption indicator has edged up from 1.74 to 1.81. The Confederation of British Industry’s reported sales figure is due out at eleven o’clock; it is the only UK statistic. Case/Shiller’s US house price index comes out after lunch, shortly followed by the Conference Board’s consumer confidence index and the Richmond Fed’s manufacturing index. There is not much to go on there so it will probably be a case of steady as she goes, with the commodity currencies leading the way, the US dollar and the yen bringing up the rear and everything else swanning around in between.
MoneyCorp
Majority approves the stress tests
Posted in Currency Update by Andrew Belles on July 27, 2010
Good morning. Research by the PDSA reveals that 35% of British dogs are overweight. Four years ago, when the previous such tests were carried out, only 21% were overweight. President Obama has blamed BP, saying its petrol sales have made it too easy for pet owners to drive around instead of taking their dogs for a walk. The CEO of BP has accepted responsibility for the epidemic of corpulent canines and has volunteered to retire. Mr Obama is outraged that he will be allowed to get away with anything less than public dismemberment. And even that would be too good for him.
There has been considerably less outrage over the stress tests carried out by European banks, despite surprisingly generous hypotheses for some respondents. Apparently the ‘worst case’ scenario for Greek banks was a 2% fall in house prices. Austrian banks did not even have to consider a property slump; their doomsday scenario involved a 2.7% price rise. The most stringent tests seem to have been those for Spanish banks, who had to model a 28% fall in house prices and a 61% decline in land valuations. Interesting, then, that it was the regional Spanish banks who came off worst and that the Austrians all passed. It is interesting also that Deutsche Bank has not yet come clean about the size of its exposure to sovereign risk. Only the government bonds on its trading book have been stress-tested; anything intended to be held to maturity was not included. Presumably it believes it can only lose money on a creditor default if the asset is revalued on a daily basis.
Nevertheless, as observed, the test results have done the euro more good than harm. It has not strengthened a great deal since the announcement on Friday evening but it is about a cent and a half better against the US dollar, a cent higher against the Swiss franc and half a cent firmer against the pound. No cigar, then, but nor has it any reason for embarrassment.
The only economic data on Monday were those for new home sales in the United States. After a -36.7% monthly fall in May, caused by the expiry of a tax break for buyers, sales jumped by 23.6% in June. Investors had been expecting an improvement but had in mind something more like 5%. Perhaps surprisingly there was no reaction whatsoever by the dollar. Poor figures in the past have tended to send it lower but good ones clearly have less effect.
There is only slightly more going on today. Gfk’s index of German consumer confidence has improved from 3.5 to 3.9 and Switzerland’s consumption indicator has edged up from 1.74 to 1.81. The Confederation of British Industry’s reported sales figure is due out at eleven o’clock; it is the only UK statistic. Case/Shiller’s US house price index comes out after lunch, shortly followed by the Conference Board’s consumer confidence index and the Richmond Fed’s manufacturing index. There is not much to go on there so it will probably be a case of steady as she goes, with the commodity currencies leading the way, the US dollar and the yen bringing up the rear and everything else swanning around in between.
MoneyCorp