Market Update, Thursday, 28th November 2013

By Musabbir Mazhar

The Office of the Superintendent of Financial Institutions (OSFI) today released its own version of the guidelines laid out by the Basel Committee in January earlier this year regarding the Liquidity Coverage Ratio (LCR) requirement. OSFI will assess whether any bank, trust or a loan company in Canada maintains adequate liquidity using this ratio – banks are expected to comment by Jan 24th 2014. The LCR is one of the main reforms that was taken by the Basel Committee in 2010 after the financial crises to strengthen the global capital markets and its liquidity. Basically, LCR requirement is that banks need to keep burden-free High Quality Liquid Assets (HQLA) so that it can cover 100% of its regular cash outflows within 30 days of a stress period in terms of financial crises. HQLA are cash and liquid assets that can be converted to cash in private markets. This 100% LCR requirement is to be met by all banks by 2019 as set by Basel. OSFI has set this deadline to be met by banks in Canada by 2015!

The S&P/TSX Financial Sector was slightly down as bank shares fell: BMO was down 0.69% at C$73.37 & RBC ended thursday at C$70.37 (-0.17%).

The S&P/TSX composite index increased 8.77 points to 13,370.83. The CAD/USD exchange rate was at 0.944 unchanged after the day. US stock market was closed due to Thanksgiving. The Canadian 10 year Bond yield was 2.539% (+0.0001).

Eurozone youth unemployment rate data came out at 24.4% at record high levels with 3.58 million under 25 year olds jobless in October in the area. Spain’s youth unemployment rate climbed to 57.4% compared to Greece’s 58% (August)- the highest in the history of europe; while in Italy the youth jobless rate was 41.2% (+0.7% from previous month) and in portugal it was 36.5% (+0.3% from last month). The Eurozone jobless data showed Spain’s youth unemployment rate has now increased to 57.4%, only marginally below Greece’s August high of 58% – which remains the highest rate of youth unemployment for any country in the eurozone’s history. Italy’s youth unemployment rate rose to 41.2%, from 40.5% the previous month. In Portugal, it rose to 36.5% from 36.2%. The general unemployment rate for adults fell from 12.2 to 12.1% in the euro area.

The Netherlands was downgraded by S&P Rating Agency to AA+ from AAA due to weaker GDP growth and negative outlook.

WTI Crude oil traded at 92.25 a barrel for Jan delivery in New York Merchantile Exchange at afternoon on thursday – WTI traded near six-month low as supplies in US piled up. Brent traded at $110.86 a barrel on ICE. Brent-WTI spread was at 18.61$ which is the widest in eight months. Some anlysts see the WTI’s price dip to $90 in the coming weeks.