EUR: Bad news for banks might be good news for the euro - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the Euro Stoxx Bank Index fell nearly 5% yesterday.

Key Quotes

“With heavy selling related to a number of different factors from certain banks being removed from the Euro Stoxx index, to disappointing earnings results to concerns over the Monte Paschi bank bailout plan meaning other banks in Europe may need to seek more capital.

Clearly, another hit to banking sector confidence will not be good for the broad macro economy and may well undermine efforts to lift bank lending into the real economy. It may also tighten financial market conditions through the FX channel as well. A hit to banking sector confidence will probably fuel renewed caution that means increased risk aversion and hence less appetite for risk, resulting in less capital being recycled into foreign markets. With the euro-zone current account surplus at a record, over 3% of GDP, that development will act to support the euro.”