- Liquidity requirements in Basel III have been loosened and delayed.
- The S&P500 ended Friday's session at a five-year high.
It was announced on Sunday that banks will be given four more years to fully comply with the liquidity coverage ratio (LCR) (until 2019), which is part of the Basel III regulation. The major central bank chiefs agreed over the weekend to delay and loosen the planned bank liquidity rules compared with previous blueprints. The softening of the requirements is a reaction to concerns that too tight regulation and an aggressive timeline could weigh down on lending and jeopardise the economic recovery.
The LCR deal also includes that lenders will be allowed to use a broader range of assets including some equities and mortgage debt. The LCR will ensure that banks hold enough easy-to-sell assets to survive a 30-day credit squeeze. Mervyn King, who is chairman of the Group of Governors and Heads of Supervision, said in a statement that "the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery," see also FT or the BIS statement.
US equity markets ended Friday’s trade slightly higher supported by decent US data. On the headline Friday’s employment report was broadly in line with the consensus estimate but the details were overall solid. Job growth in the private sector maintained the positive momentum and there was an uptick in hourly earnings and the workweek, which all support household income growth. The ISM service figures surprised to the upside with a jump to 56.1 from 54.7.
The S&P500 ended Friday’s trade up by 0.5% - the highest level in five years. The S&P500 rallied 13% in 2012 and is now just 7% from the 2007 peak. Asian stock markets are trading with no clear direction this morning. Nikkei is down 0.3% while Hang Seng is up 0.1%. The S&P future has decreased slightly in Asian trade this morning.
The sell-off in US Treasurys that was fuelled by last week’s hawkish FOMC minutes was halted in Friday’s trade. The yield on the 10-year notes has decreased to 1.88% after having tested 1.90% last week.
In FX markets EUR/USD quickly shrugged off the hawkish Fed minutes and the cross moved higher on Friday as the US labour market report underlined that an end to the Fed’s QE3 programme is not imminent. This morning the cross has edged slightly lower and is trading around 1.305.
To Read the Entire Report Please Click on the pdf File Below.