Monday, July 26, 2010
Figure 1. - TMM at work
Firstly, the release comes on the back of a run of positive European data - PMIs, IFO, and even UK GDP have been well-ahead of consensus (the things a weak currency can do for you...). This, along with a run of weaker US numbers has led European indices to outperform, the Euro has recovered 8% off its June lows, and risk has been put to work more generally. Even the Shanghai Composite has stopped falling.
In the main event, quite a bit of ink/pixels have been spilled across The Street discussing the assumptions, rigour and implications of the Stress Test. It seems that the general consensus is that, in spite of the Sturm und Drang, it's more or less a non-event (aka "damp squib"). 7 out of 91 banks failing with EUR3.5bn of new capital needed was the headline that led to a number of unimpressed punters, but underneath the surface the tests were actually more positive in the amount of data opened up to the public. Indeed, this data has allowed a number of analysts to run their own tests, and show that if the bar had been set 1% higher, 24 banks would have failed, with about 27bn Euros of new capital needed; mere chump change as far as the market is concerned, and on the margins, probably a small positive for Europe.
So where do we go from here, now that the excitement is more or less over? TMM thinks that we all, including Mr Market, go back to sleep for the rest of the Summer. Goodnight and good luck! See you after Labor Day.