European central Bank stress tests eased concern

Following the weekend the euro rose versus most of its major peers after the results of European central Bank stress tests eased concern that balance sheets at some of the regions lenders were too weak. Most of the lenders that failed the European Central Bank’s balance-sheet test have been let off for good behaviour. Only eight banks haven’t already plugged capital gaps or satisfied the ECB with plans to shrink, out of 25 found with a shortfall. That means just 6.35 billion euros ($8 billion) remains from a 25 billion-euro hole, and half of that is in italy. The ECB, releasing results of its year-long bank audit yesterday, said investors should focus on the insight they’ve gained into lenders’ books instead.

German business confidence dropped for a sixth month as the specter of a recession haunts Europe’s largest economy. The German economy, which helped the euro area emerge from its longest-ever slump last year, contracted in the second quarter, and the Bundesbank predicts little, if any, growth in the second half.

An interesting read in Bloomberg this morning, “The pound is poised to rally to a one-month high versus the dollar, after forming a chart pattern called an inverted head and shoulders, according to Brown Brothers Harriman & Co”. In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency, or index.

Domestically the CBI Distributive trades survey for October will be watched for signs of a rebound in retail activity following the disappointing September outturn. Later this evening, MPC member Nermat Shaftik speaks at an event in London.

In the US this afternoon we have the Markit services PMI for October and pending home sales for September.
MORNING MARKET RATES:

GBPEUR 1.2696
GBPUSD 1.6114
EURUSD 1.2690
GBPSEK 11.678
GBPAED 5.9195
GBPAUD 1.8278
EURGBP 0.7875
GBPJPY 173.76
GBPTHB 52.290