LONDON — European markets were little changed today even though the results of the stress tests into 91 EU banks have been met with a degree of skepticism — while the simulations gave a broadly positive view of the region’s financial sector, a number of analysts question their rigor.
In Europe, the FTSE 100 index of leading British shares was down 0.1 percent at 5,308.04 while Germany’s DAX fell 0.2 percent to 6,153.47 points. The CAC-40 in France was 0.2 percent lower at 3,599.26.
Wall Street was also poised for a fairly subdued opening — Dow futures were down 0.1 percent at 10,377 while the broader Standard & Poor’s 500 futures fell 0.3 percent to 1,097.30.
The main point of interest was how the markets would respond to the release of the stress test results, published after the markets closed last Friday.
On the surface, the results showed that Europe’s banking sector is strong enough to deal with any future economic and financial shocks — the Committee of European Banking Supervisors said only seven banks failed the tests and only needed to shore up their finances by $4.5 billion.
However, both the number of banks failing and the capital shortfall identified were lower than most expectations in the markets, raising questions over the credibility of the whole exercise. Crucial for those dismissing the results as a whitewash was the fact there was no test for a potential Greek debt default.
“Depending on your point of view you can regard the tests as some sort of ‘milestone’ which puts the eurozone banking crisis to bed and is therefore positive for markets, or you can take the view that the tests were simply ‘political whitewash’ that doesn’t resolve funding and capital needs, issues of counterparty risk and the possibility of eventual debt restructuring/default,” said Neil MacKinnon, global macro strategist at VTB Capital.
It will take a while for the real impact of the stress tests to be felt and the hope among policymakers is that the banks will now be able to access liquidity more easily in the money markets, instead of relying, as many European banks do, on the European Central Bank.
“As long as doubts over the credibility of the tests remain, they will fail to draw a line under the skepticism and doubt that has been haunting the European banking sector in recent months,” said Jane Foley, research director at Forex.com. “As a consequence many banks are likely to continue to find longer-term funding expensive.”
Stress tests are not the only thing occupying traders’ minds.
Reports that Tony Hayward is to quit his job at the helm of BP PLC following the oil spill disaster in the Gulf of Mexico has helped the oil company’s shares rise 2 percent in morning trading in London.
“Ever since Hayward told the media he wanted his life back it seems that he had been a dead man walking, and the task now begins of not only cleaning up the affected area in the gulf but also the much more arduous task of cleaning up the company’s reputation,” said James Hughes, market analyst at CMC Markets.
Earlier in Asia, Japan’s Nikkei 225 index rose 0.8 percent to 9,503.66 after a report showing exports from the world’s No. 2 economy rose for the seventh straight month in June.
South Korea’s Kospi added 0.6 percent to 1,769.07 after figures showed the country’s economic growth over the last year was a hefty 7 percent.
Australia’s S&P/ASX 200 rose 0.6 percent to 4,486.10.
Elsewhere, Hong Kong’s Hang Seng gained 0.1 percent to 20,839.91, and markets in Taiwan, New Zealand and Thailand also advanced. China’s Shanghai Composite Index reversed course and finished up 0.7 percent to 2,588.68.
In the currency markets, the dollar was down 0.7 percent at 86.86 yen while the euro rose 0.3 percent to $1.2934.
Benchmark crude for September delivery was down 66 cents at $78.32 a barrel in electronic trading on the New York Mercantile Exchange.
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info