MADRID | By JP Marín Arrese | Stock markets all over the world are plummeting while bond yields have regressed to fresh lows, as investors grow increasingly worried about growth prospects. Signs the US economy might be slowing down, coupled with the Eurozone plight, paints a gloomy scenario. Yet, the utter lack of direction in policies across the Atlantic stands as the most worrying concern.
ZURICH | By UBS analysts | Global investors have been big sellers of Europe ex-UK equities in September and also the last 12 weeks (Figure 1). And this doesn’t include the heavy sell-off in the last week. US Treasury data shows that US-based investors were net sellers of $14.3bn in June–the biggest month of selling since the collapse of Lehman’s in 2008. How far through the current correction are we? So far the European market is down 8% from its September peak–in-line with the average of 9.5% in Bull market corrections since 1975.
MADRID | The Corner | The results of the stress test will presumably be positive for the 128 European entities, although some experts do not rule out new capital increases and Coco bonds issuances, not only to strengthen their balance sheets, but also to meet other capital requirements such as gone concern loss-absorbing capacity ratios (GLAC). If they finally were to reach 25%, the main European banks would have additional capital requirements of about €460 billion in the next five years, according to Santander analysts.
MADRID | The Corner | ECB’s president Mario Draghi is attending two speaking engagements today, where he is expected to insist on the central bank’s determination to deploy its unconventional measures if necessary, given the eurozone’s gloomy macro picture.
MADRID | The Corner | Only highly positive US corporate results will cheer EU stocks today, which started fallling for a sixth day, the longest streak in almost three years, as investors awaited a German Confidence report plunging to its weakest level in 23 months.
SAO PAOLO | By Marcus Nunces via Historinhas |Matt O´Brien has gone over to the “dark side” writing “Why is the recovery so weak? It’s the austerity, stupid.”: Welcome to Austerity U.S.A., where the deficit is back below 3 percent of GDP and growth is still disappointing—which aren’t unrelated facts. It started when the stimulus ran out. Then state and local governments had to balance their budgets amidst a still-weak economy. And finally, there was the debt ceiling deal with its staggered $2.1 trillion of cuts over the next decade.
Guest Post by Olivier Debat (UBP) | High yield CDS indices combine a liquidity advantage, an interest rate advantage (no exposure) and a valuation advantage. Thus, we believe that investors concerned about high yield liquidity, its sensitivity to rates or its valuation should switch to high yield CDS indices to gain exposure to the high yield market.
MADRID | The Corner | Weak loan growth continues in Europe, although there are signs of recovery in corporate lending in France, Italy, UK, Sweden and Belgium. Bank lending surveys point to improving mortgage demand in Italy and Spain; but some deterioration in the UK. For Corporates, banks are reporting some increase in expected corporate loan demand into the year end, most notably in France and Spain, Barclays analysts commented on Friday.
MADRID | The Corner | The ECB doesn’t like the idea of allowing banks to use Deferred Tax Assets (DTA) to boost their capital buffers, a practice that was meant to be phased out under new European Union rules. The central lender fears that losses would be imposed on taxpayers should entities run into trouble in the coming years, as the WSJ reported. Even if the ECB doesn’t have the power to change that, and is not likely to make any move before the upcoming stress tests, it might push for DTA to be replaced by core capital.
MADRID | The Corner | The Financial stability board (FSB) is advocating an increase in regulatory demands of systemic banks: the so-called “too big to fail”. The details will be presented at tomorrow’s G20 meeting, but will effectively mean that more capital and liabilities can automatically be written off in a crisis. The basic requirement will be set at 15-20% of risk-weighted assets by 2019, although the final number will be higher (even more than 25% in certain cases) since lenders have to meet “other regulatory capital buffers,” according to the document, dated Sept. 21, quoted by Bloomberg.