A backstop for banks needed says Asmussen as Europe’s inflation falls to 0.7%
Euro area annual inflation was 0.7% in October 20132, down from 1.1% in September. A year earlier the rate was 2.5%. Monthly inflation was -0.1% in October 2013. European Union annual inflation was 0.9% in October 2013, down from 1.3% in September. A year earlier the rate was 2.6%. Monthly inflation was -0.1% in October 2013. In October 2013, the lowest annual rates were observed in Greece (-1.9%), Bulgaria (-1.1%) and Cyprus (-0.5%), and the highest in Estonia and the United Kingdom (both 2.2%) and Finland (1.7%). Compared with September 2013, annual inflation fell in twenty-three Member States.
ECOFIN meetings resume today
The ECOFIN meeting is continuing today, high on the agenda should be the stress tests that up to 128 banks in Europe will be put through in order to test their liquidity, solvency and balance sheets. Many banks are expected to fail the tests, but apparently there’s no rush as they have close on a year to remedy the situation.
Naturally the citizens of Cyprus will be watching carefully to see if the bail in many savers were subjected to this year is repeated should some banks fail. Or will, as many suspect, the other banks throughout Europe be quietly and efficiently rescued by way of bail outs and the costs socialised throughout Europe?
Joerg Asmussen, a European Central Bank board member, has stated this morning that Eurozone governments must put in place ways to financially support their banks in the event that they require more capital. Speaking ahead of the Eurogroup’s second day of meetings Asmussen said health checks by the ECB found there were still plenty of banks with weak balance sheets. Today finance ministers are discussing backstops for banks in time for the ECB’s asset quality review, the results of which are due in October 2014.
“We will continue to discuss this today. From the ECB side we always said it was absolutely necessary that we have credible backstops in place before the whole exercise starts, so we need three layers of backstops. These are first private markets, second domestic markets, or domestic bank rescue funds, and the third layer is the European Stability Mechanism (ESM) as it stands.”
Italy’s trade balance falls sharply
Italy’s trade balance data was published this morning, the figure came in at €0.79bn positive, a significant fall on the previous month’s €1.07 billion and seriously below the estimates of €1.6 bn, but still showing an exporting surplus, unlike many other countries, such as the USA and UK, who are racking up huge deficits.
Euro area annual inflation down to 0.7%
Euro area annual inflation was 0.7% in October 20132, down from 1.1% in September. A year earlier the rate was 2.5%. Monthly inflation was -0.1% in October 2013. European Union annual inflation was 0.9% in October 2013, down from 1.3% in September. A year earlier the rate was 2.6%. Monthly inflation was -0.1% in October 2013. In October 2013, the lowest annual rates were observed in Greece (-1.9%), Bulgaria (-1.1%) and Cyprus (-0.5%), and the highest in Estonia and the United Kingdom (both 2.2%) and Finland (1.7%). Compared with September 2013, annual inflation fell in twenty-three Member States
Moody’s cuts ratings on several USA investment banks
Moody’s cut the credit ratings of big US banks including Goldman Sachs, Morgan Stanley and JPMorgan Chase late yesterday evening, after deciding that the federal government is less likely to bail the financial institutions out if they get into future difficulties. They had the ratings on their long-term senior unsecured debt lowered one notch to Baa1, Baa2 and A3, respectively
Disappointing growth figures in the eurozone and Japan driven by weak export numbers have dashed hopes that a global economic recovery would gather pace in the second half of the year. Growth in the eurozone faltered in the third quarter, expanding 0.1 per cent following growth of 0.3 per cent in the second quarter. In Japan, the rate of growth halved to an annualised rate of 1.9 per cent.
Market snapshot at 10:00 am UK time
Asian bourses continued their ascent on the prospect of increased monetary stimulus in the USA. Investors have been watching testimony from Janet Yellen, the nominee for chairman of the Federal Reserve, who has so far repeated the Fed’s view the central bank would tie policy changes to underlying improvement in the US economy particularly unemployment and a loose target of 6.5%. China’s benchmark money-market rate jumped the most in almost five months as the central bank drained cash from the financial system for a second week. The ASX 200 closed up 0.86%, the CSI 300 up 2.01%, Hang Seng up 1.79% and the Nikkei up 1.95%.
European indices have endured mixed fortunes in the morning trading session; STOXX down 0.28%, CAC down 0.24%, DAX down 0.-4%, FTSE flat, Athens exchange up 0.47%
Equity index futures for the USA open suggest a flat opening; the DJIA is flat, SPX up 0.04% and the NASDAQ up 0.15%.
NYMEX WTI oil is up 0.11% at $93.86 per barrel, NYMEX nat gas is down 0.28% at $3.60 per therm whilst gold on COMEX is down 0.26% at $1282.90 per ounce.
Forex focus
The yen slid 0.1 percent to 100.07 per dollar early in London after reaching 100.31, the weakest level since Sept. 11th. Japan’s currency reached 134.94 per euro, the least this month, before at 134.69, down 0.1 percent. It has lost 1 percent versus the dollar this week, and was down 1.7 percent against the euro, set for the biggest five-day slide since September. The U.S. currency was unchanged at $1.3461 per euro, set for a 0.7 percent weekly decline. Yen was set for a third weekly slide as gains in stocks and expectations for continued economic stimulus around the globe trimmed demand for haven assets.
Bonds
The 10-year yield rose one basis point to 2.70 percent early in London from yesterday. The 2.75 percent note due in November 2023 fell 3/32, or 94 cents per $1,000 face value, to 100 14/32. The benchmark yield has fallen five basis points this week, the first drop since the five days ended Oct. 25th. The 30-year yield added one basis point to 3.80 percent, down five basis points this week. A basis point is 0.01 percentage point. Japan’s 10-year yield added 2 1/2 basis points to 0.63 percent, the highest since Oct. 17th, as Asian shares advanced, with the MSCI Asia Pacific Index jumping 1.4 percent. Treasuries fell, snapping a two-day gain, before data forecast to show manufacturing in the New York region expanded at a faster pace and retail sales rebounded.
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