Global mkts await stress test results; Nifty ends flat

23 Jul 2010

The benchmark Nifty closed the session on a flat note on Friday following an indecisive move in the European markets and the US index futures, ahead of stress test results of 91 European banks today. In early trade today, the markets were positive on the back of 2-2.5% rally in the US markets on Thursday and good Asian cues.

The european markets as well as the US index futures looked cautious ahead of stress test results; Britain's FTSE was down 0.3% while France's CAC & Germany's DAX gained 0.3% each. Even Dow Jones and Nasdaq futures were marginally in the green. Asian markets ended 0.4-1.4% higher; only Nikkei gained 2.3%.

In an effort to calm investors' jitters over the potential impact of the euro zone debt crisis on Europe's banking system, banking regulators are assessing how 91 banks across Europe would cope with another economic downturn, and the results are set to be published at 1600 GMT on Friday. Ten out of the 91 banks subjected to Europe's stress tests are expected to fail, according to a survey of investors conducted by Goldman Sachs.

Stephen Pope of Cantor Fitzgerald says, EU bank stress tests are not rigorous enough. "The market senses that when the results are released on an official basis rather than all the leaks we are getting from a country by country basis, you will find that there will be certainly a majority of banks tested with a passed. What I think we are really concerned about is that the test themselves and have they been rigorous enough? And the answer to that is no."

"We need to have far more rigour. But what we really want to have is a lot of transparency and that would allow analysts and various investment institutions to back test this, reverse engineer it and find out do they agree or do they disagree, and at what point do they disagree with the results that will be published today," he said.

However, Bank stress tests will undoubtedly have a good impact on the banking sector, European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said on Friday.