Bloomberg reports today that, “The European Union’s decision to publish the results of stress tests on the region’s lenders was welcomed by shareholders seeking more transparency. Investors still want to know how tough the terms of the tests will be.”
This is what I’ve been warning about for some time about how doing stress testsare great, but there are at least two more steps that need to be taken for reduction of uncertainty over European banks and countries.
The best indicator that things are calming down is that debt issuance and commercial paper issuance are coming back. Spain had a successful auctionyesterday, BofA raised $3 billion in 10 year notes yesterday, and commercial paper outstanding rose by $18.8 billion to $1.08 trillion. Also, US 3m Libor dropped to .53819 from .53925. This is adding to the new theme developing the markets of a stabilizing credit market.
Part of this new theme is something that is unstable. Namely, the lack of job growth in the United States and the problems of US fiscal spending. The employment situation is the major economic story in the country and the weekly jobless claims continue to show no major drops despite +3% GDP growth since the fall. The measly private sector payroll increases are disappointing. The recent weaker than expected housing starts, building permits, Philadelphia Fed index, and retail sales are all generating concern over slowing US growth and potential double dip. The euro has rallied, the US dollar has sold off, equities have rallied and the bond yields have stabilized.