Euro rises on short-covering after stress tests report by ECB and weak U.S. economic data: Oct 28, 2014

Market Review - 27/10/2014 22:01GMT

Euro rises on short-covering after stress tests report by ECB and weak U.S. economic data

Despite euro's brief rise to 1.2715 in Asia after ECB released the stress tests report on Sunday, euro retreated to 1.2667 in Europe on downbeat Ifo business confidence data but buying interest emerged in New York morning after the release of weaker-than-expected U.S. economic data, including Markit Services PMI and pending home sales change. Euro rebounded to 1.2723 before easing.

The stress tests report released on Sunday showed lenders among the 130 banks including Banca Monte dei Paschi di Siena SpA failed a stress test led by the ECB, which showed the biggest capital hole in the region's banking system in Italy. The ECB identified a total gap of 25 billion euros as of the end of 2013, most of which has now been raised by banks. Among lenders still in need of funds, Italy's Monte Paschi (BMPS) and Banca Carige SpA (CRG) must find a combined 2.9 bln euros between them, the ECB said. None of Europe's largest banks were found lacking. No French, German or Spanish institutions were required to find more capital. Lenders found to be deficient now have as many as nine months to fill gaps identified by the ECB, which is aiming to close the door on half a decade of financial turmoil in the euro region.

Germany Ifo business climate, current conditions and expectations came in weaker-than-expected at 103.2, 108.4 and 98.3 versus forecasts of 104.3, 110.0 and 98.9 respectively. Ifo economist Wolrabe said 'almost no bright spots in German industry at present; upward trend in recent PMIs not yet visible in our survey; only export expectations rose slightly, need to see if this sustainable; bank stress tests have no short-term impact on lending; sees zero growth for German economy in Q4.'

Although dollar's opened higher and rose to 108.37 in Australia on Monday following Sun's Yomiuri poll showed public approval for Abe's government dropped, renewed selling knocked price lower. U.S. dollar later dropped to 107.61 in NY morning on renewed risk aversion after the release of weaker-than-expected U.S. economic data.

Japan's biggest daily the Yomiuri surveyed 1,059 people by telephone on Friday and Saturday and found support for Abe's gov't had fallen to 53% from 62% in less than a month. Of those surveyed, 37% said they disapproved of the gov't, up from a 30% disapproval rating in a previous poll on Oct 10. In the biggest setback since he took office in December 2012, Abe lost two cabinet ministers on one day last week, complicating tough decisions on key policies, including whether to proceed with an unpopular sales tax hike n restarts of nuclear reactors shut down after the 2011 Fukushima disaster.

Despite cable's brief retreat to 1.6083, renewed cross buying in sterling versus euro lifted the pair. The British pound later rose to 1.6147 in New York morning on dollar's weakness elsewhere after the release of weaker-than-expected U.S. economic data before easing.

Bank of England Deputy Governor Minouche Shafik said in the Financial Times (FT) newspaper interview that there is "no significant evidence" that price pressures are building in Britain's economy. Shafik said "if you look at what we would expect to see at this point in the recovery, the increases in wages that we have seen have not been significant." Shafik said the BoE would need to see more of the data "pointing in the same direction", particularly for wages and unit labour costs, before raising interest rates from their record low level of 0.5 percent.

Tuesday will see the release of Japan's retail sales, German import index, U.S. durable goods, Redbook, CaseShiller house price and consumer confidence.