Daily Archives: July 23, 2010

*Updated to included the originally missing bank, Sunday 10.21am

The results are in. Complaints have already begun that the stress tests weren’t stringent enough, but with the handy table below, you can fashion your own stress test… just pick your preferred Tier 1 ratio and click the column heading to sort. Read more

Chris Giles

The stress test results are out now and seven European banks have failed – five Spanish banks, one already failed German bank and one Greek bank. Over the next few hours and days, investors will digest the considerable information put out by the Committee of European Banking Supervisors and decide whether they agree with the following conclusion from CEBS.

The aggregate results suggest a rather strong resilience for the EU banking system as a whole and may appear reassuring for the banks in the exercise, although it should be emphasized that this outcome is partly due to the continued reliance on government support for a number of institutions.

If investors are similarly reassured, it should ease pressures in bank funding markets and limit the chances of a further liquidity squeeze on European banks. If not, the exercise could backfire. Read more

Canadian consumer price inflation has once again touched one of its target boundaries (2 per cent +/- 1 per cent). Consumer prices rose 1 per cent in the 12 months to June, following a 1.4 per cent increase in May.

Energy prices explain most of the drop. Energy prices rose 1.3 per cent between June 2009 and June 2010, having increased 6.2 per cent in the 12 months ending in May. Excluding energy, the CPI advanced 0.9 per cent in June, compared to 1 per cent in May. Read more

Confirmation that PIGS banks are the riskiest of the stress test batch, according to credit default swap data – just as banks from two of these countries reveal capital-raising plans.

Sort the stress test banks on the column headings below to see for yourself. Markit has kindly provided five-year CDS data for as many banks as possible, plus the year-to-date change (in basis points). (Quick reminder: the higher a CDS spread, the greater the cost to insure against default, i.e. the higher the market-perceived risk. A 300bp spread means it would cost $30,000 to insure $1m.) Read more

Chris Giles

No-one predicted that the UK economy would storm ahead quite so much in the second quarter. Initial estimates from the Office for National Statistics suggest the economy grew by 1.1 per cent between April and June compared with the previous quarter – far above the already pretty strong consensus of 0.6 per cent. The surprise came because services was measured to have stormed ahead in May, by 1 per cent.

There is no doubt that this is above-trend growth and it helps to explain the favourable tax revenue, labour market and survey data that have been a feature of the British economy for some time. Construction, business services, finance and government services were the biggest contributors to this growth rate. While government services cannot continue to contribute 0.2 percentage points to growth in future quarters, given the looming cuts, there is no reason to say other sectors will automatically fall back.

For the authorities, this unexpected good news really puts the cat among the pigeons. For the Bank of England, this is evidence the recovery is gathering steam and ultra-loose monetary policy is working. It also helps to explain a little why inflation has been overshooting. It will certainly make it much easier for the Monetary Policy Committee to argue that there is no need to loosen monetary policy in response to the tough Budget. And it will raise expectations of higher interest rates again, if this remarkable quarter of growth continues. Read more

The acting head of the Bank of Indonesia has been formally confirmed as its new governor, after facing tough questions from the House of Representatives on tax fraud. Read more

The central bank of China and monetary authority of Singapore have agreed a three-year currency swap valued at 150 billion yuan ($22.1bn), the People’s Bank of China announced today:

“In order to promote bilateral trade and direct investments, Bank of China and the Monetary Authority of Singapore on July 23, 2010 in Beijing signed a bilateral currency swap agreements. The size of the swap agreement for the 150 billion yuan / about 30 billion Singapore dollars. Agreement has a term of 3 years may be extended by mutual agreement.” (translated from the original using Google translate, h/t Bloomberg)