UK banking shares recover as bad debts mushroom
In a bizarre turnaround, shares in a number of UK banks have pushed ahead this morning on news of the US banking stress tests, even though bad debts in the UK and in Europe have increased substantially. The rose tinted glasses view of many investors may appear to be at odds with what is actually going on in the financial world but in many ways the markets are now relieved they seem to have an angle on the problems.
As we have mentioned a number of occasions, the worst case scenario for stock markets round the world is uncertainty, uncertainty as to how good and uncertainty has to how bad a particular situation may become. The fact that the US stock market appears so far to have taken the result of stress tests in its stride, even though tens of billions of dollars in additional funding will need to be raised in the short term, has assisted the UK and European banking sectors. The hope is that the US banking sector will improve gradually over the coming months and drag the European and worldwide banking sectors out of the doldrums.
Many investors are banking on a US recovery to drag the worldwide economy out of recession but this may take a little longer than many believe.
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