G20 finance ministers and central bankers issued a joint statement yesterday in which they assure they will “take all necessary actions to preserve the stability of banking systems and financial markets as required.” They announced that EU officials will increase efforts to avert contagion of the debt crisis in the Eurozone by making the EFSF more flexible and effective.
The announcement followed yesterday's fall of markets to their lowest level in 13 months. On Friday European stocks opened firmer with Eurostoxx 50 Index advancing 0.5%, with the German DAX Index another 0.5% up, and the French CAC index trading practically flat. In the UK, the FTSE Index edged up 0.2% one hour after the opening bell.
The G20 official meeting will take place this weekend in Washington, on the occasion of the semi-annual IMF and World Bank conferences. Bill Hubard, Chief Economist at Markets.com, suggests that it is necessary for the G20 to find a way to coordinate efforts on a global scale in order to fight the crisis instead of issuing general statements: “Imagine if the next Fed meeting, due for November 2nd, delivered QEIII, whilst the BoE also simultaneously embarked on round 2 of their own QE, whilst the ECB, due to meet on the November 3rd, could add a helpful 50 bps of interest rate cuts at Mario Draghi’s first meeting Imagine how much more of an impact on market confidence there would be if these policies were combined, and I-F the BRIC countries delivered some rate cuts of their own? Co-ordinated action would also avoid much of the USD weakness that would accompany a unilateral policy of ‘only’ US QE.”
The ECB has also announced its will to step in, in case of further deterioration of economic activity next month. Governing Council member Luc Coene said in Washington that the central bank is considering to introduce again longer-term bank loans with maturities of 12 months or even longer. Also the IMF head Christine Lagarde expressed her increasing preoccupation with the worsening economic condition: "The current economic situation is entering a dangerous phase. This heavy debt of sovereigns, households and banks represents risks that could actually suffocate the recovery."
Recapitalization and downgrades for European banks
The EU is planning another move aimed at reassuring markets about the resistance of the European banking sector. The EU internal markets commissioner, Michel Barnier said yesterday in an interview for the Le Figaro that 16 European banks which barely passed last summer's stress tests will have to undergo recapitalization. The list includes seven banks from Spain, two from Greece, two from Portugal, two from Germany and one each from Italy, Cyprus and Slovenia. Despite recent problems, financial institutions from France and Belgium with considerable exposure to Greek debt did not appear on Barnier's list.
Greek financial entities themselves have been downgraded today by Moody's which cut their rating by two notches. Six of them were downgraded to Caa2 from B3 and two were downgraded to B3 from B1. The ratings of all the banks in question carry a negative outlook.
The announcement followed yesterday's fall of markets to their lowest level in 13 months. On Friday European stocks opened firmer with Eurostoxx 50 Index advancing 0.5%, with the German DAX Index another 0.5% up, and the French CAC index trading practically flat. In the UK, the FTSE Index edged up 0.2% one hour after the opening bell.
The G20 official meeting will take place this weekend in Washington, on the occasion of the semi-annual IMF and World Bank conferences. Bill Hubard, Chief Economist at Markets.com, suggests that it is necessary for the G20 to find a way to coordinate efforts on a global scale in order to fight the crisis instead of issuing general statements: “Imagine if the next Fed meeting, due for November 2nd, delivered QEIII, whilst the BoE also simultaneously embarked on round 2 of their own QE, whilst the ECB, due to meet on the November 3rd, could add a helpful 50 bps of interest rate cuts at Mario Draghi’s first meeting Imagine how much more of an impact on market confidence there would be if these policies were combined, and I-F the BRIC countries delivered some rate cuts of their own? Co-ordinated action would also avoid much of the USD weakness that would accompany a unilateral policy of ‘only’ US QE.”
The ECB has also announced its will to step in, in case of further deterioration of economic activity next month. Governing Council member Luc Coene said in Washington that the central bank is considering to introduce again longer-term bank loans with maturities of 12 months or even longer. Also the IMF head Christine Lagarde expressed her increasing preoccupation with the worsening economic condition: "The current economic situation is entering a dangerous phase. This heavy debt of sovereigns, households and banks represents risks that could actually suffocate the recovery."
Recapitalization and downgrades for European banks
The EU is planning another move aimed at reassuring markets about the resistance of the European banking sector. The EU internal markets commissioner, Michel Barnier said yesterday in an interview for the Le Figaro that 16 European banks which barely passed last summer's stress tests will have to undergo recapitalization. The list includes seven banks from Spain, two from Greece, two from Portugal, two from Germany and one each from Italy, Cyprus and Slovenia. Despite recent problems, financial institutions from France and Belgium with considerable exposure to Greek debt did not appear on Barnier's list.
Greek financial entities themselves have been downgraded today by Moody's which cut their rating by two notches. Six of them were downgraded to Caa2 from B3 and two were downgraded to B3 from B1. The ratings of all the banks in question carry a negative outlook.
The most pressing issues that are currently derailing global markets can be found below:
- FOMC provides no further stimulus to the market after announcing “Operation Twist”, while warning that the US economy faces "significant downside risks".
- The ECB published a study Thursday co-authored by Executive Board member Juergen Stark, emphasizing the gravity of the debt crisis in Europe which in his opinion might lead to the Eurozone breakup
- IMF lowers economic outlook and sees danger ahead, urging the rapid recapitalization of European banks.On Thursday, Christine Lagarde, head of the International Monetary Fund, said that the economic situation was entering a "dangerous place".
- Uncertainty over Greece receiving the next bailout funds to pay off its debt. The market has already priced in that is only a matter of WHEN not IF about Greece defaulting on its debt.
- Fears of contagion risk for European peripheral economies and banks if a Greek default is not conducted in a relatively orderly and controlled manner. The ECB continues to buy Spanish and Italian bonds to prevent higher premiums.
- Downgrades all over again. Several Italian banks were downgraded yesterday by S&P, which follows those of the three largest American banks, and also the country of Italy earlier on the week.
- BRIC nations continue to send mixed messages over their intentions to help the Eurozone, either directly or through the IMF.
