And the week begins, as it tends to do, with a controversy: on Monday, Deutsche Bank was reported to receive a “special treatment” by the European Central Bank during a series of stress tests that targeted European’s largest banks. A stress test is a series of simulations that aim at evaluating the soundness and solidness of a bank, and to individuate how much capital the bank would need to survive a run or a financial crisis. Deutsche included in the stress test a further $4 billion capital acquired from a shares sale to the Chinese Bank Hua Xia – that, however, had not yet been completed and should not have been included in the reports. The German Bank simply specified in a footnote that the contract was to be concluded only in 2016 (the stress tests were conducted during 2015). The main goal of the test is to identify how much capital a bank would need (in relation to their liabilities), and falsification of the results is a severe violation that will undoubtedly damage trust in the bank and reduce investors’ confidence in a very rough moment for DB, as it is still facing increasing media coverage and an enormous fine (see last week review on the Lennon wall) – a deadly mix for a bank.
The British sterling is still declining against Euro and Dollars dramatically, being the ‘second-worst performing currency in the G10 space’ last week, falling below $1.15 (a 1985 rate) and under €1.10. The free fall of the pounds will not come as bad news for those who rely on tourism or export for a living in the United Kingdom, those two sectors are becoming cheaper for foreigners, and a rise in income of tourists from Europe and the United States is expected.
Last week, Apple stated that they will soon invest in China to open a research and development center in Shenzhen, following Apple’s previous plans to invest $45 million in Beijing.
Next April, a new EUR 50 bill will be introduced in the Eurozone – it was unveiled by Yves Mersch, member of the Executive Board of the ECB at a press conference in Frankfurt am Main, in Germany.
One economist reported that a recession in 2017 is “unlikely” or only “15-20%” likely to happen, despite several statements by executives that confirm an increasing volatility in the market and low earnings. On October 17, market indexes fell worldwide and the stock markets looked gloomy throughout the day. To make the situation worse for investors, reported corporate earnings have been either declining or too weak to inspire optimism in an anxious Wall Street just few weeks ahead of the US presidential elections.
In short, the week has not been exceptionally successful for the economy, to say the least. Next week, several reports are expected to be published to evaluate the current year and to predict economic growth during 2017. The Czech National Bank will publish their quarter financial reports on the October 18, and that will also be covered.
Photo courtesy of Mark Hillary