Today, the decision long-awaited by investors on the American stock exchange came out. As it seems, it is not to the liking of the market bulls and banks, whose shares are getting cheaper before the session.
The Federal Reserve announced on Friday that it would not extend a March 31st exemption that allowed banks to exclude Treasury securities and central bank deposits from the calculation of a key measure of bank capital known as the supplementary leverage ratio (SLR). The exemption was put in place last year during the market turmoil after the economy ground to a halt due to a pandemic. However, the Fed has said it will ask for comments on possible long-term changes to the SLR.
Tension has been mounting on Wall Street in past weeks over the Fed's decision on the exemption. Some analysts said big banks would have less appetite for Treasury bonds if they had to add them to the calculation of their capital requirements. Fed officials have said they don't mind if the temporary relief expires, given that banks have a strong capital position. Fed officials suggested that the decision would not have a disruptive effect on banks' operations.
The Fed's decision collapsed futures on Wall Street and led to a further sell-off in Treasury securities and helped push yields higher. At one point, Dow Jones futures were down more than 1 percent, while S&P 500 futures were down more than 0.7 percent. Even the Nasdaq 100 index, which until recently was trading in the uptrend, seems to have fallen by almost 0.5 percent. The last session of the week may therefore be quite nervous, and the records achieved this week on the S&P 500 or DJIA seem difficult to maintain.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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