Tuesday FX Interest Rate Monitor

Risk aversion took a step forward following analysis by Wall Street Journal staffers, claiming flaws in the methodology of the July stress-testing process across 91 European banks. The contention is that banks have understated the value of government paper they are holding, which underestimates maximum potential losses in the event that a government defaults. The story unleashed yesterday also claims that certain banks failed to include paper issued by specific nations, which might help explain why so many Eurozone analysts missed the mark at the time. Yields across the globe have claimed back much of last week’s losses as data warmed up especially in the world’s largest economy.

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Tuesday FX Interest Rate Monitor

Bond prices responded to flexing Asian equity markets on the prospect of a rethink by China on its restrictive policies now the pace of expansion has moderated. However, equity index futures buckled on disappointing earnings headlines from Goldman Sachs whose numbers look worse thanks to a recent SEC fine and British banking tax. Bonds have since regained their upward move as equity prices weaken while a sliver of optimism was to be found in a construction report reflecting an increase in the number of building permits.

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