Stress Tests Considered Success

The stress testing of Euro-zone banks is generally considered to have been a success,restoring confidence to world markets.Despite skepticism from some economists as to the toughness of the tests,the Committee of European Banking Supervisors insists the tests were more severe than the U.S. stress tests of last year.The Euro-zone tests postulated a once in twenty years scenario,while the U.S. tests postulated a once in seven years scenario.The Euro-zone tests were based on a double dip recession,with a 20% stock plunge and four notch downgrade of credit ratings.
Among the 91 banks tested were HSBC,Lloyd's,Deutsche Bank,Commerzbank,Unicredit,Santander and National Bank of Greece.All but seven of the 91 banks passed,most of the failures being Spanish savings banks,as well as Germany's Hypo Real Estate Bank and Greece's ATE Bank.The national authorities are in close contact with these banks to assess the results and implications,in particular in terms of the need for recapitalization,the CEBS said.
On Tuesday,Deutsche Bank reported good earnings and made positive remarks on its outlook.German unemployment came in at 7.7%,while U.S. unemployment is at 9.7%.

IMF Addresses Today's Concerns

The International Monetary Fund,an autonomous UN agency,has been addressing the issues of the day recently.On the topic of trade imbalances,Managing Director Dominique Strauss-Kahn said not even full appreciation of the Chinese currency,the Yuan,will solve the total imbalances.Other measures are also necessary to achieve that:
1.Improve domestic demand in Asia.Asia is a global economic powerhouse.A country shouldn't hide behind its currency.
2.Maintain a strong focus on foreign investment.
3.Manage currency reserves.
4.Institute capital controls,if necesssary.
China has been bitterly criticized of late by German businessmen for hindering foreign companies,as well as by General Electric CEO Jeff Immelt.In response,China insisted foreign businesses were being treated fairly.
With regard to Friday's release of Euro-zone bank stress test results,IMF First Deputy Managing Director Joseph Lipsky hoped for broad coverage by the tests,transparency and remedial action as needed.We need a realistic scenario that provides stress and gives some good insight into the strength of the banking system.All the preconditions for the test that were needed are being fulfilled.
Mr.Lipsky wouldn't assume that any central bank is out of ammunition for dealing with the financial crisis.He doesn't fear for the political independence of the central banks,either.

Euro-zone Crisis Management Update

The Euro-zone is attempting to deal with both the global financial crisis and the regional debt problem,while closely monitoring for signs of inflation.The European Central Bank is holding interest rates steady for the time being.Jean-Claude Trichet,ECB President,said he expects the Euro-zone to grow at a moderate pace.The ECB will adjust liquidity as appropriate.We will continue to see moderate price developments.Inflationary pressures over the medium term will remain contained.
Mr.Trichet urged deficit cuts to consolidate recovery from the financial crisis.
As for the Euro-zone debt crisis,John Taylor,a professor at Stanford University,thinks there's expectation that,down the road,Greek debt will be restructured.It could be quite orderly,changed without a lot of problems.It's quite likely.
In a further unfolding of the debt crisis,Moody's credit rating agency has just downgraded Portugal's sovereign debt.The U.S. market didn't respond to the news,absorbed in the initially positive earnings reports.
Moody's Corporation(MOC)

Australian Mining Tax Reduced

The new Australian government has reached agreement with mining companies on the Mineral Resources Rent Tax,which had generated controversy and ultimately brought down the government of former Prime Minister Kevin Rudd.New Prime Minister Julia Gillard said the agreement will maintain Australia's standing as an attractive and competitive business destination.She believes they've struck the right balance between corporate and public interests.The tax on iron ore and coal was reduced from 40 to 30%,and the threshold levels were raised,bringing the number of companies subject to the tax down to 320 from 2500.
The Australian dollar rose 0.25 when the agreement was reached.Shares of the two biggest mining firms in the country,BHP Billiton and Rio Tinto,also rose on the news.The dispute had lasted for two months.Peter McGuire,Managing Director of CWA Global Markets,said Ms.Gillard acted very decisively and quickly to turn this thing around.The reality is that Australia is resource-based,and mining is the number one headline,Mr.McGuire explained.
Rio Tinto(RTP),BHP Billiton(BHP)