All’s Not Well With Wells

By far the most important event today will be the ECB decision with interest rates and

 whether it’ll go

 through with its expected decision to cut .25% (25bps) to 1%. Despite the rally and the increased optimism its vital the ECB do that, if not more; Europe’s competitiveness will lose out if it’s not as aggressive in its response to the global recession as the UK and US have been. Despite Germany’s relative insulation from the crisis; both France and Germany seem more protected this time round, there still needs a concerted effort to weaken the currency, improve exports and further strengthen the peripheral economies like Spain, Ireland and dare I say Netherlands. Not only is it more critical for these countries to emerge from the recession quicker but also avoids their government milking the fiscal stimulus as much and would make their populations far more receptive to the idea of a single currency.

The results of the Fed’s stress test have leaked out and it highlights that in particular there are 3 of the 19 banks examined, which would be in need of additional capital infusion. Wells Fargo, Citigroup and Bank of America would need billions more to stabilise them if the recession deepened; BoA some $34bn and Citi an additional $5bn. 

What’s heartening about the equity rally at the moment is the absolute bullishness being driven out of Asia; there’s an increasing belief now that the worst is over, at least in America. This first rush of optimism also highlights the extremely volatile nature of the markets; recovery is never a piecemeal, gradual process these days instead its violent jolts of realisation of undervaluation.