News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • The US Dollar seems to be back on the offensive against its major counterparts, pressuring EUR/USD and NZD/USD lower as USD/JPY consolidates. USD/CHF surges past key resistance. Get your market update from @ddubrovskyFX here:https://t.co/MrLGSp7FYa https://t.co/XS0176LyOg
  • The Japanese Yen remains in focus with strength potential on risk aversion themes to go along with weakness on themes around higher rates. Get your weekly $JPY technical forecast from @JStanleyFX here: https://t.co/l4UICqJzJy https://t.co/dQ2pS0E4fp
  • Google finance-related search interest in 'Evergrande' has almost overtaken 'Covid'. 'Taper' doesn't even register on the scale https://t.co/P6H9sHFVIB
  • Gold prices gain as potential systemic risks out of China's Evergrande Group roil broader markets. Meanwhile, iron ore is ticking higher after a big drop on Monday as China steps up steelmaking curbs. Get your market update from @FxWestwater here:https://t.co/l4kAWDJ2wm https://t.co/b9m5ADIqqb
  • Gold remains higher despite positive Evergrande news out of China. Meanwhile, copper bulls are pushing prices upward as the potential for a housing crisis in China ebbs. Get your market update from @FxWestwater here:https://t.co/TK3MNntBdA https://t.co/14UKjR4w6M
  • GBP/USD has flattened overnight after its strongest rally in a month on Thursday. The British currency has been under pressure recently as an energy crisis has caused a number of gas providers to go bankrupt. Get your market update from @HathornSabin here:https://t.co/3D8s2eIVWv https://t.co/JDGNwKYyOn
  • Japanese candlesticks are a popular charting technique used by many traders, and the shooting star candle is no exception. Learn about the shooting star candlestick and how to trade it here: https://t.co/mfwJ0sIauS https://t.co/JIT5it2HAt
  • Gold could suffer further near-term losses due to rising U.S. Treasury yields and a weak technical picture for price action. Get your weekly gold forecast from @DColmanFX here: https://t.co/g9QvH3L4It https://t.co/Vz98E0Bl9U
  • Gold has been trending lower after failing to clear resistance in the $1835 area earlier this month. Get your $XAUUSD market update from @DColmanFX here:https://t.co/3hm1g3BHgf https://t.co/MdTQKEBCBx
  • Key break here in the 10-year #Treasury yield as it rises to the highest since late June Took out 1.4230 resistance, and the 100-day SMA Eyes now on the 38.2% Fib extension at 1.4775 Also potential falling resistance from March https://t.co/4cI6l210ui
Fed Stress Test: Bank Stocks Trim Gains on Dividend Restrictions

Fed Stress Test: Bank Stocks Trim Gains on Dividend Restrictions

Thomas Westwater, Analyst

Fed Stress Tests, Bank Stocks, Recession – Talking Points:

  • Fed limits share repurchase programs and dividends
  • Bad loan losses could hit $700 billion in adverse virus scenario
  • Bank stocks slightly lower following Fed results

The Federal Reserve released its annual stress tests results Thursday afternoon, following a green day on Wall Street for big banks as certain provisions of the Volcker rule were rolled back to allow banks to invest in private markets more easily and lower margin limits for derivative trading. Overall, the Fed’s analysis concluded capital levels will hold up under several modeled scenarios. In Thursday's Wall Street session, before the stress tests results were released, the Financial Select Sector SPDR ETF (XLF) rose 2.65% in Thursday’s session, while the S&P 500 index gained 1.10%. A portion of those gains are pulling back in after-hours trading. Still, financials continue to lag the S&P 500 index year-to-date as investors worry over depressed interest rates and increased loan losses amid the virus-induced economic fallout.

S&P 500 Index versus XLF-Financial Select Sector SPDR ETF

Fed stress tests SPX vs XLF

Chart created in TradingView by Thomas Westwater

Alongside the conventional stress tests, in place since the 2010 Dodd-Frank Act, a “sensitivity analysis” was released in tandem with the annual results, designed to replicate three scenarios amid the COVID-19 pandemic. The Fed’s Vice Chair for Supervision, Governor Quarles, previously described these three scenarios as a rapid V-shaped recovery, a slower U-shaped recovery, and a W-shaped double dip recession recovery. Under the most adverse scenario, the 34 largest banks in the United States could lose $700 billion in loan losses. These results will be used “to inform our overall stance on capital distributions and in ongoing bank supervision,” said Governor Quarles.

Scenario Variables in Fed Stress Tests

Select scenario variables in the severely adverse scenarios FED

Source: Federal Reserve Assessment of Bank Capital During the Coronavirus Event

Bank stocks dropped marginally on the report’s release. Specific results were not released, but in aggregate, the report concludes that banks are still well capitalized to weather future shocks. However, the Federal Reserve is implementing several actions following the results, including suspending share buybacks in the third quarter and limiting dividends. Vice Chair Quarles said, the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.”

Aggregate CET1 Capital Ratio Levels

Aggregate CET1 capital ratios

Source: Federal Reserve Assessment of Bank Capital During the Coronavirus Event

Even as bank stocks fell on the report’s release, Thursday brought several large events that could cause some volatility in bank stocks in the coming days, as investors digest the latest information. Moreover, the Fed states that some assumptions appear conservative. The main variables in the scenarios reflect changes in the peak unemployment rate, GDP changes, and the 10-year Treasury yield, among others. Going forward, the Fed stresses that the outlook remains highly uncertain and these results do not capture all possible scenarios.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES