Stress tests may be hard to interpret, Goldman sees V-shaped recovery and expects slowing in 2021

Revamped US bank stress tests to challenge analysts | Goldman's Solomon: V-shaped rebound likely, to slow in '21 | IMF downgrades global outlook as debt mounts

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June 25, 2020

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Managing Risk in Today's Markets

Analysts may find the results of the Federal Reserve's latest bank stress tests, due for release today, particularly difficult to interpret. Uncertainties have arisen because of the coronavirus pandemic coinciding with changes to the test methodology.

Full Story: Reuters (6/24)

Goldman's Solomon: V-shaped rebound likely, to slow in '21

Goldman Sachs CEO David Solomon expects a V-shaped economic recovery in the near term, despite an increase in coronavirus cases, but says the recovery might lose momentum next year. "I do think we're going to see a sharp V to start with, but it's very open-ended as to what kind of economic friction we're going to see as we get through the end of the year and into 2021," he says.

Full Story: Business Insider (6/24)

IMF downgrades global outlook as debt mounts

The International Monetary Fund has again lowered its outlook for the world economy, predicting a 4.9% contraction this year amid rising public indebtedness because of the coronavirus pandemic.

Full Story: Financial Times (subscription required) (6/24)

Insiders pose data theft threat

A recent survey by WSJ Pro Research finds that the threat of insiders stealing data is a major concern for organizations, especially large enterprises. Retail and government sectors are at high risk due to troves of information on consumers.

Full Story: The Wall Street Journal (tiered subscription model) (6/21)

Bloomberg Insights

End-of-day risk assessment leaves companies vulnerable

The prevalence of end-of-day batch systems for monitoring risk could leave organizations unprepared for daily market swings. Monitoring market value throughout the day can help organizations better manage these risks.

Full Story: Bloomberg Professional Services (6/23)

Pandemic underscores importance of monitoring credit risk

The coronavirus pandemic has shown the importance of identifying credit risks to supply chains, borrowers and suppliers. "Keeping abreast of credit risk developments in times of volatility is a key challenge for all traders, front-office staff and risk managers," according to Bloomberg.

Full Story: Bloomberg Professional Services (6/23)

Analysis: More pain ahead for India's economy

India is recovering from economic damage related to the coronavirus pandemic but appears to have a long road ahead, according to various indicators. Bloomberg is predicting a "U-shaped" recession and recovery pattern.

Full Story: Bloomberg Professional Services (6/23)

Trading Trends

Quants warn on widening search for alt data

The current unpredictability in the markets has triggered an increasingly widening search for alternative forms of data that may offer insights on future direction. Quantitative analysts warn such insights are hard to find amid market chatter, and equally hard to verify as accurate.

Full Story: BNN Bloomberg (Canada) (6/25)

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Gap between stock indexes widest since 1983

The gap in performance between the S&P 500, the Dow Jones Industrial Average and the Nasdaq composite keeps growing, with the Nasdaq ahead of counterparts by the widest margin since 1983. The difference is attributed largely to consistent outperformance by tech stocks such as Apple, Amazon and Microsoft.

Full Story: The Wall Street Journal (tiered subscription model) (6/23)

US leveraged loan issuers seek relief

Because of declining earnings and increased debt, 43 US leveraged loan issuers asked for concessions from debt holders in May. That's a record number of borrowers seeking relief.

Full Story: Financial Times (subscription required) (6/23)

SmartBrief Originals

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Operational Efficiencies

Banks expand digital offerings for small-business clients

Banks are offering more digital tools, such as electronic signatures and online loan applications, to continue serving customers through the coronavirus pandemic. BBVA USA, which made 22,000 Paycheck Protection Program loans in nine weeks using an automated lending platform, has escalated its shift toward digital offerings for small-business clients following its success with the PPP.

Full Story: American Banker online (subscription required) (6/23)

Financial sector faces job losses, reduced bonuses

Layoffs announced by HSBC portend a painful year for the financial sector as the coronavirus pandemic slows the global economy. Wall Street bonuses are expected to take a 15% to 20% hit, according to consulting firm Johnson Associates.

Full Story: Forbes (6/24)

Cboe to debut volatility indexes, FX platform

Cboe Global Markets will launch volatility indexes during the third quarter based on the iShares 20+ Year Treasury Bond exchange-traded fund. Cboe will also increase indexes based on interest-rate swaps and eventually list futures and options. Additionally, the company will launch a currency-trading service called Cboe FX Central, offering an alternative to foreign exchange trading.

Full Story: BNN Bloomberg (Canada) (6/24), Financial Times (subscription required) (6/24)

Regulatory Review

FICC algo trading good-practice guidelines issued

The FICC Market Standards Board has issued good-practice guidelines for algorithmic trading in fixed-income, currency and commodity markets to reduce risk and promote good conduct and governance among traders. The board's statement lists 10 points market participants and venue operators should follow.

Full Story: The Trade (UK) (6/24)

Commentary: Financial deregulation might be near end

Regulators' meeting today to revise the Volcker rule and other restrictions on how banks operate might mark the last wave of deregulation under the Trump administration, Jesse Hamilton writes. President Donald Trump's poor showing in voter polls suggests agency heads might change after the election, and they likely would curtail deregulation, Hamilton writes.

Full Story: BNN Bloomberg (Canada) (6/24)

Reg BI to take effect next week

Regulation Best Interest, the set of rules requiring broker-dealers to act in the best interest of clients and to disclose conflicts of interest, will take effect Tuesday. "This is a very strong rule, something the firms have taken very seriously, and there is no question this is a higher standard," said SIFMA President and CEO Kenneth E. Bentsen, Jr.

Full Story: CNBC (6/25)

Research & Analysis

Survey: Banks preparing for divestitures

A majority of banks surveyed by EY are planning major divestitures of less successful units and assets. The survey shows 87% of respondents plan to start offloading within two years, while 60% of respondents expect to act within a year.

Full Story: BNN Bloomberg (Canada) (6/23)

GDP-linked bonds transfer some risk to investors

Bonds that link repayment to GDP growth are one way to protect governments in times of weak growth, though pricing can be a challenge. Due to the risk transfer, investors require a premium.

Full Story: Bank Underground (Bank of England) (6/24)