June 21, 2021

Bank shares prop up European stock markets

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French traders Oct 13 2008From Digital Journal

European stock markets steadied on Monday, with support coming from gains to banking shares after regulators relaxed rules on lenders’ capital buffers.

London’s FTSE 100 index of top companies edged up 0.8 percent compared with Friday’s closing values to 6,7745.24 points in afternoon trading.

In Frankfurt, the DAX 30 index added 0.10 percent to 9,482.27 points and in Paris the CAC 40 gained 0.21 percent to 4,259.42 points.

The euro dipped as traders booked profits from recent gains by the single currency.

“The financial heavyweights were helped higher by a decision by regulators to relax the Basel ruling on capital requirements, giving them some welcome breathing space and hopefully a potential boost in returns,” said CMC Markets senior trader Toby Morris.

UnknownCentral banks have agreed to relax a key provision of reforms instituted after the global financial crisis to strengthen commercial banks.

The Basel Committee, which oversees the implementation of reforms that will be applied in 27 countries, issued amendments late on Sunday of how the so-called leverage ratio will be applied.

Banking shares rallied in reaction. Deutsche Bank jumped 3.6 percent to 38.17 euros, Societe Generale hiked up 2.1 percent to 44.91 euros and Barclays advanced by 2.2 percent to 289.80 pence.

As part of their business of lending banks acquire more assets, or risks, than the capital they hold, and this ratio is called leverage.

As part of the reforms being introduced following the 2007 crisis, regulators wanted banks hold more capital in case of losses, thus have a lower leverage ratio.

The Basel III reforms, which are being implemented over the coming years, require that banks limit assets to three times the amount of capital.

There have been concerns that, unless banks raise huge amounts of capital, lending could be crimped, as well as how lots of trade finance operates.

Changes proposed on Sunday allow banks to exclude much of their short-term finance operations by offsetting transactions, and recording only their net positions as opposed to their gross exposure for the purpose of calculating the leverage ratio.

Dollar mixed after US unemployment numbers

In foreign exchange trading, the European single currency slid to $1.3646 from $1.3663 late on Friday in New York.

But the dollar fell against the yen, buying 103.12 of the Japanese currency against 104.10 on Friday.

The euro rose to 83.37 British pence from 82.91 pence Friday. The British pound fell to $1.6363 from $1.6480.

Gold prices rose to $1,246 an ounce from $1,227.50 on the London Bullion Market on Friday.

The dollar faced further selling pressure in early exchanges after tumbling on Friday in response to official US employment figures, but later rebounded against the euro and pound.

Asian stock markets meanwhile diverged on Monday after the worse-than-expected US jobs report could lead the Federal Reserve to hold off on any fresh cuts to its stimulus programme.

The Labor Department said Friday the US economy added just 74,000 jobs in December, well below the 197,000 expected by analysts.

At the same time it said the unemployment rate dropped to 6.7 percent from 7.0 percent in November, although that was mostly because more people had given up looking for work.

“One reason why equities may not be reacting to the weaker US labour market data is that it makes it less likely that the Fed will speed up the pace of tapering,” said Kathleen Brooks, research director at online broker Forex.com.

The drop in US Treasury yields suggested the market thought the jobs report meant the Fed will avoid aggressively scaling back its stimulus for the time being.

The central bank will hold its next policy meeting at the end of the month and investors will be closely monitoring it to see if it further reduces its bond-purchasing.

At its most recent meeting, it said it would cut the stimulus by $10 billion a month to $75 billion, citing a strong pick-up in the US economy.

US stocks opened modestly lower Monday, with the Dow Jones Industrial Average down 0.10 percent to 16,420.67 points after five minutes into trade.

The broad-market S&P 500 inched down 0.09 percent to 1,840.73 and the tech-rich Nasdaq slipped 0.06 percent to 4,171.97.

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