A slew of overnight woes concerning the health of banks around the world was limited in its support for the U.S. dollar. One year ago that evidence would have been enough to raise the heartbeat of the bears and send the pre-market futures down by 2%. Today, equity index futures continue to point to another positive North American session and the net impact is to provide a prop for the euro rather than the U.S. dollar. The euro also rose after the strongest reading for 15 months in a poll of investor sentiment. The euro is back to unchanged on Monday's close at $1.4975.

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Asian markets felt the full impact of a fresh health-scare for Chinese banks. Shanghai stocks slumped 3.5% overnight after the mainland banking regulator warned banks to meet industry capital requirements or else be prepared to face its sanctions. According to media reports, a source with knowledge of the plans says that at least four Chinese lenders have submitted capital raising plans to regulators.

An S&P report used in-house metrics to look at risk-adjusted capital ratios of European banks and served up a warning to several houses including UBS, Allied Irish and BBVA. In the meantime, Lloyds Banking Group announced terms of its attempted largest-ever domestic rights issue with a near-60% discount to where its shares are trading.

Finally, WestLB - the state-owned regional German lender is reportedly going to be allowed to fail by its majority owners according to a major Frankfurt-journal. The bank said later that it is in discussions with SoFFin, the German financial market stabilization fund to isolate its toxic assets.

Yet while all of the above continues to unwind negative news about the health of the financial sector we have to point out that as much as it is newsworthy today, it's hardly new news. So some major banks are enacting plans to raise capital. Isn't this a good thing? It is in our minds. Failure to accomplish the feat could be taken as a negative in the event that these entities fail to attract fresh cash and at the same time prevailing investors walk away. Hence our headline today that risk aversion is taking a back seat.

The euro rebounded from an overnight low at $1.4888 after a report showed that German business confidence rose in November to a 15-month high. The IFO institute's reading of sentiment from 7,000 business executives came in strong with a reading of 93.9 and above the expected 92.5.

Third quarter manufacturing demand has boosted prospects for growth especially at a time when inventories were allowed to slip. The most significant component of today's report comes from the 98.9 reading for expectations about the future for the economy. This confirms what we note above that current perceptions reflect buoyancy after the measures aimed at dealing with the stability of the financial sector. While today's warnings might be necessary to keep a tight rein on the financial sector, it is ultimately beneficial for the ongoing recovery process.

The dollar continues to lose ground against the Japanese yen at ¥88.68 with the yen refusing to cede ground against the dollar after as the initial bout of risk aversion appeared to subside. It very much confirms that the dollar's loss of status is set to continue.

The British pound continues to pare earlier losses against the dollar and is up to $1.6583 from an overnight low at $1.6504. Bank of England data shows a modest rise in the number of mortgage approvals while lending to consumers and businesses dropped again.

In a quiet Australian session the Aussie dollar came under some selling pressure, reacting quickly to the latest bout of risk aversion as investors continued to lighten the load somewhat on long Aussie positions. At 92.06 U.S. cents the Aussie is firmly off its overnight low of 91.55 cents.

Andrew Wilkinson

Senior Market Analyst