10 September 2010 at 7:24 GMT
The equity market is still reacting towards macroeconomic releases on an intraday basis. Clearly there is no trend, only range trading. This Sunday the Basel III capital requirements will be released and it will clearly have a large effect on equities especially financials both on a short and longer term. Market consensus varies between 10-11% and no matter how the result is coming out financials will be very volatile. The real issue is not really the release on Sunday, rather the reasoning behind the results.
If the Tier1 and Tier2 capital ratio is set artificially low or the implementation period is extraordinary long then this is a clear indication of that the steering committee at Basel is very nervous about the state of the financial sector in Europe. On the other hand if the requirements are perceived as being too strict the fear will be that the requirement will curb growth. Either way this is important also on a longer term. But for sure it will not alter the range trading in equities that we are currently witnessing. For that we need more clarity on the outlook for the economy and in our view most investors have too soon abandoned the concern about further economic weakness.
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