EQUITIES: Stress Tests Could Result in Slower Buybacks Among Largest US Banks
Jun-23 11:18
- Worth watching later today: At 2130BST/1630ET, the Fed release the results of their 2022 stress testing of US banks (methodology here: https://www.federalreserve.gov/publications/files/... , scenarios here: https://www.federalreserve.gov/newsevents/pressrel... )
- The tests look to gauge whether the biggest banks in the US have adequate capital to cover losses that emanate from a significant theoretical economic downturn. The Fed have flagged that this year's scenarios include a severe global recession twinned with considerable stress in commercial real estate and corporate debt. 34 banks have been assessed this year.
- Surplus capital in the US banking sector is estimated at ~$75bn, but results this week could prompt lenders to raise more in surplus capital to head off higher stress capital buffers. This may force the largest US banks to slow down their pace of share buybacks in the coming quarters – particularly the drop in excess capital across Q1 due to higher market rates and bond portfolio losses.
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US EURODLR FUTURES: Post-LIBOR Settle Update: Ignoring New 3M 2Y High
May-24 11:04
Lead quarterly EDM2 trading +0.010 at 98.1975 even after latest 3M LIBOR set' gains +0.00714 to new 2Y high of 1.53100% (+0.02457/wk).
- Balance of Whites (EDU2-EDH3) currently trading +0.025-0.030, Reds through Golds (EDM3-EDH7) +0.030-0.060, Blues (EDM5-EDM6) outperforming.
- Inversion holds to front Reds: low mkt measure of confidence in Fed managing a soft landing/avoiding recession has extended: Red Sep (EDU3) currently trading 96.820 vs. Red Jun (EDM3) at 96.695. Levels start to flatten out (dis-invert) around Blue Sep'25-Dec'25 trading 97.16-.15.
- Monday FI option trade recap: Mixed flow on lighter volumes, better upside call, call structure buying in Eurodollar and Tsy options looking for a technical rebound in underlying futures, more two-way in SOFR options.
- Salient flow: Block buy of 26,580 Sep Eurodlr 97.62 calls, 10.0 vs. 97.38/0.33%; +9,500 TYN 120.5/122 call spds, 20 ref 119-09 and +10,000 TYN 121 calls, 22 re. 119-04.5. In SOFR options: +12,000 SFRU2 97.37/97.43/97.56/97.62 call condors, 2.0-1.75, mostly 1.75 after Block buy 10,000 SFRU2 97.43/97.56/97.68 put flys, 2.25, another 7k at 2.0/screen.
EUR: EURCHF extends gains
May-24 11:04
- EURCHF extends gains, while most crosses now trade steady in G10.
- EURCHF targets last Thursday's high at 1.03606.
LIBOR: JAPAN FIX - 24/05/22
May-24 10:57
- JY0001M -0.05553 0.00000
- JY0003M -0.01754 0.00000
- JY0006M 0.03281 0.00000
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