The Federal Reserve gave the biggest U.S. banks a clean bill of health in its annual stress test, saying they would be able to continue lending to households and businesses even in a severe recession. This year’s stress test measured the 34 biggest banks’ ability to maintain strong capital levels in a hypothetical recession marked by sharply higher unemployment and a steep decline in stock prices. The banks subject to the test remained above their minimum capital requirements in the test’s worst-case scenario, though they would collectively lose more than $600 billion, the Fed said. Their capital ratios would decline to 9.7%, more than double their minimum requirements, according to the Fed. Bigger banks have additional surcharges that require them to hold higher levels of capital beyond the minimum. The severely adverse scenario, as it is known, had U.S. unemployment rising to a peak of 10% in the third quarter of next year. It assumed a 40% decline in commercial real estate prices, a 28.5% drop in home prices, widening corporate bond spreads, a 55% decline in stock prices and increased market volatility.

The seesaw trading of the past few days continued on the Swiss stock market on Thursday. The SMI lost 0.7 per cent to 10,453 points. Among the 20 SMI stocks, there were 15 price losers and 5 price winners. 34.18 (previously: 35.01) million shares were traded. Pharmaceutical giants Novartis (-0.4%) and Roche (+0.2%) prevented even greater losses in the SMI. Novartis received accelerated approval from the FDA in the USA for a combination drug to treat cancer. Financials trended lower. As on the previous day, yields on the bond markets were under pressure, which weighed on the sector. Credit Suisse (-5.5%) and Swiss Life (-3.6%) fell particularly sharply, but UBS (-2.5%) and Zurich Insurance (-2.1%) also failed to please investors. Cyclical stocks again suffered from recession worries. ABB lost 1.7 per cent, Holcim 2.7 per cent. Luxury stocks showed a mixed trend. While Richemont gained 0.5 per cent, Swatch fell 0.4 per cent.

European equity indices fell again on Thursday as a sharper-than-expected slowdown in private sector activity in the eurozone fuelled fears of a recession. The Stoxx Europe 600 index lost 0.8% to 402.4 points. In Paris, the CAC 40 and the SBF 120 lost 0.6% and 0.7%, respectively. In Frankfurt, the DAX 40 was down 1.8%, and the FTSE 100 in London was down 1%. Bayerische Motoren Werke AG opened a $2.2 billion plant in China for electric cars, as the German auto maker seeks to catch up with Tesla Inc. and Chinese rivals in the country’s booming electric-vehicle market. The 15 billion yuan investment in the plant is the biggest that BMW has ever made in China, its largest market, the company said in a statement Thursday. The plant in the northern industrial city of Shenyang will be operated by BMW and its local partner and will boost the joint venture’s annual output by around 18% from 2021 to 830,000 vehicles, BMW said. Italy’s Banca Monte dei Paschi di Siena SpA said Thursday that it would raise up to 2.5 billion euros ($2.64 billion), slash thousands of jobs and close dozens of branches as part of its multiyear plan to revamp its balance sheet, turning a page on a chapter that saw the lender undergo state recapitalization and the disposal of billions in bad loans. The world’s oldest bank said that it would aim to cut roughly 4,000 jobs through a voluntary exit scheme, a move Monte dei Paschi expects will create EUR270 million in savings a year from 2023 against one-off restructuring costs of about EUR800 million. It will also close some 150 branches, bringing its network to just over 1,200 branches.

U.S. stocks advanced amid a second day of testimony from Federal Reserve Chairman Jerome Powell after he warned that rapidly rising interest rates threatened a recession. On Thursday, the S&P 500 rose 35.84 points, or 1%, to 3795.73. The technology-heavy Nasdaq Composite Index gained 179.11 points, or 1.6%, to 11232.19. The blue-chip Dow Jones Industrial Average rose 194.23 points, or 0.6%, to 30677.36. Investors have mostly shed riskier assets in recent days, prompted by growing concerns that efforts by the Federal Reserve to bring inflation under control will take a toll on the economy. Investors are growing less optimistic that the Fed can engineer a so-called soft landing, where interest rates rise to curb inflation without pushing the economy into a recession. Mr. Powell acknowledged those risks in two days of testimony to lawmakers, saying that a recession was possible and that a soft landing would be "very challenging." During Thursday's testimony before the House Financial Services Committee, Mr. Powell said the Fed would be reluctant to cut interest rates until there is clear evidence inflation is coming down. Merck & Co. is pushing forward with a potential deal for biotech Seagen Inc., according to people familiar with the matter, in what would be one of the largest takeovers of the year. The Wall Street Journal reported last week that Merck was in talks to buy Seagen, which would beef up the pharmaceutical giant’s cancer-drug portfolio, but that no agreement was imminent. The talks have picked up pace and the two companies are scheduled to meet this week, some of the people said.

After a week of losses, the East Asian stock markets and Australia recovered on Friday. In Japan, new price data were in line with expectations and show that the country's inflation rate of 2.5 per cent is still far from the dramatic inflation rates elsewhere, which is why the central bank there can afford to continue on an ultra-expansive course. Nevertheless, the inflation rate in Japan is also above the central bank's target of 2.0 per cent. The Nikkei 225 index gained 1.0 per cent to 26,443 points. Seoul (+2.0 per cent) recovered the most, although it had also suffered the greatest losses previously.

In U.S. bond markets, Treasury yields declined for a second day though they remained close to their highest levels in more than a decade. The yield on the benchmark 10-year U.S. Treasury note fell to 3.068% from 3.155% on Wednesday. Bond yields fall as prices rise.

UBS lowers target of Swiss Life to CHF 539 (643) – Buy
Citi lowers Asos target to 1,000 (1,500) p – Neutral
Citi lowers Rolls Royce target to GBP 1.47 (1.77) – Buy

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