Euro opened the week higher as the results of the year long bank stress tests eased concern of health of the regions banks. Technically, 25 out of 150 banks failed the tests and faced a cumulative short fall of EUR 24.6b. However, most of them have already taken actions in 2014. And currently, all but 13 of the banks needed additional capital of EUR 9.5b in total. Further than that, the footnotes explained that 5 of them, including 2 banks in Greece, 2 in Slovenia and 1 in Belgium, either don't need additional fund, or have reduced the balance sheets, or were wound down. Thus, only eight remaining banks required additional capital. ECB vice president Vitor Constancio noted that "this unprecedented in-depth review of the largest banks' positions will boost public confidence in the banking sector." And, "this should facilitate more lending in Europe, which will help economic growth."
Meanwhile, Euro will also face the test of German Ifo today. The business climate is expected to improve slightly to 104.8 in October, after falling for the fifth consecutive month to 104.7 in September, and hit the lowest level since April 2013. Current assessment gauge is expected to drop to 110.0 while expectations gauge is expected to drop to 98.9. Released last week, the ZEW economic sentiment plummeted to the negative territory for the first time in nearly two years. Any downside surprise today will weigh on the sentiments towards German economy and Euro. Also to be released from Eurozone, M3 money supply is expected to rise 2.2% yoy in September. UK will release CBI reported sales and US will release pending home sales.
Looking ahead, Fed, RBNZ and BoJ will meet this week. Fed is widely expected to finally ended the quantitative easing program as planed. With the completion of the program, there will be significant changes to the statement, taking away all those paragraphs regarding the purchase as well as tapering. The biggest question is whether Fed would finally drop the language of "considerable time" regarding keeping rates low after ending QE. RBNZ is widely expected to keep the OCR unchanged at 3.50 and maintain a tightening bias. However, recent economic data has been rather disappointing, in particular the much lower than expected Q3 CPI reading. Should RBNZ sound more neutral in this week's statement, or hint at prolonging of the pause in the tightening cycle, the Kiwi would be under renewed pressure. BoJ would likely be a non-event. Here are some highlights of the week.
- Monday: German Ifo, Eurozone M3; US pending home sales
- Tuesday: US durable goods, S&P Case Shiller house price, consumer confidence
- Wednesday: Japan industrial production; UK mortgage approvals; Canada IPPI, RMPI; FOMC
- Thursday: RBNZ; German CPI, unemployment; US GDP
- Friday: Japan CPI; Australia PPI; BoJ; Canada GDP; US Personal income and spending, Chicago PMI, U of Michigan sentiment.