Shares Increase Despite Fed Announcement Of Over $ 700 Billion In Covid-19 Business Loan Losses

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Hello and welcome to our continued coverage of the global economy, financial markets, the eurozone and business.Equity investors in Asia and Europe appear unflappable at the results of the long-awaited US Federal Reserve bank stress tests covering the country’s 34 largest lenders

This was despite a harsh warning about the magnitude of the expected credit losses following the Covid-19 pandemic which, according to the central bank, could reach $ 700 billion.

But investors seem less afraid of the numbers given the Fed’s relatively moderate response. Although there is now a ban on costly share buybacks (a decision some of the largest banks have already implemented on a voluntary basis), the payment of dividends to shareholders has only been capped.

This does not respond to measures taken both in the EU and in the United Kingdom. You will recall that the Bank of England pushed lenders to cut $ 8 billion from payments and to cancel cash bonus plans for executives.

But David Madden, market analyst at CMC Markets UK, said the US Fed could go even further:

The Fed will allow US banks to continue paying dividends, but they will be capped at their current levels, but there are rumors that dividends will be cut.If banks want to pay dividends, they have to have a profit-linked formula. The next round of the reporting season will be interesting, as dividend policies and bad debt provisions will be the focus.

And although there was a negative move on the Hong Kong Hang Seng overnight, which is down about 0.8%, that does not respond to any banking news.

Madden says investors are reacting to a bill in the US Senate that will target companies or countries supposed to help China reduce Hong Kong’s autonomy.

But in Europe, expect a positive start to negotiation:

IGSquawk
(@IGSquawk)

European opening calls:#FTSE 6215 + 1.11%#DAX 12340 + 1.33%#CAC 4,988 + 1.40%#AEX 567 + 1.19%#MIB 19,474 + 1.25%#IBEX 7351 + 1.11%#OMX 1,676 + 0.89%#STOXX 3264 + 1.40%#IGOpeningCall


June 26, 2020

Agenda:

10:00 a.m. BST: Italian business and consumer confidence for June

1:30 p.m. Pacific time: US readings of personal income and consumption for May



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