Stress test
The Federal Reserve warned that in a worst case scenario, some banks reserve capital would fall close to minimum capital requirements, with lenders subjected to loan losses of up to $700 billion.
The central bank directed 33 of the largest U.S. banks to suspend share buybacks and cap dividend payments.
Bank shares including , J P Morgan Chase, Goldman Sachs and Wells Fargo all fell in extended trade after hours, all three having rallied during the normal trading session ahead of the results.
So, all the banks have, in essence, ‘passed’ the stress test, but this is likely only because of the massive injection of Fed liquidity provisions and governmental monetary stimulus. Under a harsh scenario, U.S. banks could face losses of up to as much as $700 billion as unemployment hits 19.5%.
Wall street mini-rally
The rally on Wall Street yesterday spilled over into in global equities as they continued to gain ground in the overnight session.
Stocks rallied despite continuing concerns hat some large and economically important U.S. states are going through significant rises in Covid-19 cases and are halting their reopening.
The market does seem to be able to live with rising cases better than it did, partly because there is not the sense that anyone wants to lockdown the entire economy again.
We will be analysing data through the summer soon as reporting season kicks off again. This should provide a much clearer view of how economies are doing. If investors start to think earnings per share forecasts are not about to improve drastically then the S&P 500 surely cannot manitain the expensive ratios it currently trades on.
Other news
The ECB’s Lagarde said, ‘we’ve probably passed the worst of the coronavirus crisis’. She is also reported to have said that. ‘central banks have responded massively to the challenge and there is no question in my mind that we need to use all tools available’.
Tesla’s stock price target raised at Deutsche Bank.
Nike fourth-quarter sales drop nearly 40%.
U.S. governors are reversing plans to reopen their states as the country registered the biggest ever jump in coronavirus cases. There is a growing fear that the virus is increasingly dictating events in much of the U.S.