Europe breathes sigh of relief following ECB stress tests

We have a quiet day ahead in the UK, US and Canada. Following the release of the European Central Bank stress test results yesterday, we will have the numbers for ECB covered bond purchases today (14:30GMT).

UP

EUR performed strongly overnight, strengthening against most of its major peers after the ECB stress tests showed that the largest Eurozone banks were sufficiently capitalised, with no German, Spanish or French banks causing concern, The stress tests identified a total capital shortfall of EUR25bn across the banks reviewed at the end of 2013, but all but EUR6.35bn capital shortfall has been remedied by the banks.

It is expected that we will see some strength in the Brazilian real when markets reopen this morning following there-election of president Dilma Rousseff, securing 51 percent of the vote. But while Dilma has made noises about increasing her support for pro-market measures, her first term was market by heavy-handed state responses to weak growth and inflation concerns.

DOWN

While most indices performed well overnight, Chinese and hong Kong equity markets declined. The Hang Seng dropped 0.87 percent overnight, while Shanghai dropped 1.07 percent.

DAY AHEAD

Today sees a quiet session in the UK, US and Canada, with only Europe releasing any data of note.

The ECB will release covered bond purchase numbers at 14:30 GMT.

German IFO numbers are expected to see a decline in the November expectations number, with the consensus pointing to a decline from 99.3 to 98.9, while the business climate survey is expected to see a decline from 110.5 to 110.0.

UK POLITICS

With less than 200 days to go until the UK general election, odds on the Betfair exchange of the election resulting in no overall majority have decreased to 51 percent. William Hill has the odds of no overall majority at 8/11, with the odds of a Labour majority at 9/4, aConservative majority at 7/2 and the odds of a return of theConservative-Liberal Democrat coalition at 3/1.

A YouGov poll showed that the Ukip Calypso song is unlikely to make it to number one in the UK music charts. According to a poll carried out, 14 percent of British people heard some part of the song,while only 3% say they listened to the whole thing. 7 percent of Ukip supporters say they listened to the whole song.

Of those who heard at least some of the song, most people (57 percent) say they did not enjoy what they heard, however a significant minority (43 percent) did.

CHART OF THE DAY

In their Global Economic View, Investec chief economist Philip Shaw highlights gains in “safe haven” assets.

“Growth concerns have helped the risk on/risk off split re-emerge, a theme we have become accustomed to in recent crisis years. Safe haven assets, Treasuries and gilts have rallied as expected with the wave of risk aversion, with 10y yields dropping below 2% on 15 Oct for the first time since May 2013. Meanwhile Euro area growth concerns, fears of a snap election in Greece and its aim to go it alone in exiting its bailout, have reinvigorated nervousness in peripheral Eurozone fixed income markets. As such spreads over Bunds have also widened in Spain, Portugal and Italy. Similarly investors have sought the traditional safe haven currencies, such as the Yen and Swiss Franc and sold risk currencies.”