Citigroup fails USA Fed stress test as its shares fall 4% in late trading

Mar 27 • Morning Roll Call • 1965 Views • Comments Off on Citigroup fails USA Fed stress test as its shares fall 4% in late trading

shutterstock_74757481There was a late selloff in the USA on Wednesday which left investors temporarily bemused, however, the bemusement was temporary as the news that one of the major USA banks, Citigroup, failed the stress test and other major banks in the USA will have to modify their business plans was the cause of the sudden lack of positive sentiment. And Citigroup wasn’t the only failure, HSBC, RBS and Santander also failed. The sharp selloff came after a fairly mundane trading session that had seen the Aussie continuing its breach through the 200 SMA noted yesterday in our between the lines article.

The Markit flash USA services PMI came in at 55.5 up from the 53.3 four month low seen in February. However, according to Markit business growth in the USA is still very much in a stagnant period with jobs growth unchanged from the 11 month low in February. Capital goods spend in the USA also fell according to the latest reading, bookings for non-military capital goods excluding aircraft fell 1.3 percent after a 0.8 percent gain in January. The cold weather is still being used as an excuse therefore analysts and investors will be looking for a rapid improvement in the next reading.

Fed Bank Stress Test Results

The Federal Reserve on Wednesday announced it has approved the capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve objected to the plans of the other five participating firms–four based on qualitative concerns and one because it did not meet a minimum post-stress capital requirement.

Strong capitals levels help ensure that banking organizations have the ability to lend to households and businesses and to continue to meet their financial obligations, even in times of economic difficulty. Now in its fourth year, the Federal Reserve in CCAR evaluates the capital planning processes and capital adequacy of the largest bank holding companies, including the firms’ proposed capital actions such as dividend payments and share buybacks and issuances.

Based on qualitative concerns, the Federal Reserve objected to the capital plans of Citigroup Inc.; HSBC North America Holdings Inc.; RBS Citizens Financial Group, Inc.; and Santander Holdings USA, Inc. The Federal Reserve objected to the capital plan of Zions Bancorporation because the firm did not meet the minimum, post-stress tier-1 common ratio of 5 percent.

Markit Flash U.S. Services PMI

New business growth eases for the third month in a row – Jobs growth unchanged from 11-month low recorded in February Data collected 12–25 March. At 55.5 in March, the headline seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index 1 picked up sharply from February’s four-month low (53.3). The latest ‘flash’ PMI reading, which is based on approximately 85% of usual monthly replies, was above the neutral 50.0 value for the fifth consecutive month and signalled a solid overall pace of output growth. Nonetheless, reports from survey respondents suggested that stronger growth of business activity in March partly reflected.

Capital Goods Orders Drop as U.S. Business Spending Cools

Orders for U.S. business equipment fell in February for the second time in three months, signalling corporate investment will be slow to gain momentum following an unusually harsh winter that put a damper on demand. Bookings for non-military capital goods excluding aircraft fell 1.3 percent after a 0.8 percent gain in January that was smaller than initially reported, data from the Commerce Department showed today in Washington. Demand for all durable goods –items meant to last at least three years — climbed a more-than-forecast 2.2 percent, reflecting the biggest gain in automobile demand in a year.

Market overview at 10:00 PM UK time

The DJIA closed down 0.60%, the SPX down 0.70% and the NASDAQ down 1.43%. Euro STOXX closed up 1.08%, CAC up 0.94%, DAX up 1.18% and the UK FTSE up 0.01%. The DJIA equity index future is down 0.73%, SPX future down 0.88% and the NASDAQ future is down 1.38%. Euro STOXX future is up 0.63%, DAX up 0.83%, CAC up 0.45% and the UK FTSE future is down 0.54%.

NYMEX WTI oil finished the day up 1.03% at $100.21 per barrel. NYMEX nat gas is down 0.39% on the day at $4.39 per therm. COMEX gold was down 0.64% at $1302.70 per ounce with silver down 1.17% at $19.74 per ounce.

Forex focus

The Australian currency reached 92.45 U.S. cents, the strongest since Nov. 22nd, before trading at 92.24 cents mid-afternoon New York time, up 0.6 percent.

The euro fell 0.3 percent to $1.3788. It touched $1.3749 on March 20th, the lowest since March 6th. Europe’s shared currency traded 0.6 percent lower at 140.60 yen. Japan’s currency advanced 0.3 percent to 101.99 per dollar. Australia’s dollar climbed after Reserve Bank Governor Glenn Stevens said there are early signs the nation is in a transition from mining-led demand growth to domestic consumption and the economy may expand later this year. The Aussie has risen 3.4 percent this month against its U.S. peer, the best performer among the greenback’s 16 most-traded counterparts. The euro has slipped 0.1 percent, and the yen has declined 0.2 percent.

The pound appreciated 0.4 percent to 83.27 pence per euro late afternoon London time, the biggest gain since Feb. 12th. The U.K. currency strengthened 0.2 percent to $1.6566 after rising 0.3 percent during the previous two days.

Sterling has appreciated 10 percent in the past year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 8.1 percent, while the dollar was little changed. The pound strengthened the most in six weeks against the euro after Bank of England policy maker Martin Weale said U.K. interest rates should increase as the economy recovers.

Bonds briefing

The benchmark 10-year note yield fell five basis points, or 0.05 percentage point, to 2.70 percent as of late afternoon in New York, the biggest drop since March 13th. The price of the 2.75 percent note due in February 2024 rose 14/32, or $4.38 per $1,000 face value, to 100 14/32. The five-year yield dropped five basis points to 1.68 percent, while the two-year debt yield rose two basis points to 0.44 percent.

The butterfly spread measuring five-year notes versus two-and 10-year securities, was at 20 basis points after closing at 29 basis points on March 24th, the highest since April 2010. Treasuries rose the most in almost two weeks as the cheapest five-year note auction in almost three years spurred demand for the securities amid rising tensions over Russia’s annexation of Crimea.

Fundamental policy decisions and high impact news events for Thursday 27th March

Thursday witnesses the private loans data for Europe published expected in at 2.1% down. Retail sales for the UK are expected to come in at 0.5% up for the month, weekly unemployment claims in the USA are predicted in at 326K. FOMC member Pianalto speaks whilst the USA final GDP is published, expected in at 2.7% quarter on quarter. Pending home sales in the USA are anticipated to come in at 0.2% up on the month.

Household spending in Japan is anticipated to have risen by 0.3%, core Tokyo CPI by 0.9% with national core CPI by 1.9%. Unemployment in Japan is expected to print at 3.7% with retail sales in Japan expected to have improved by 3.6% year on year.
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