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Financial Markets: Headlines for June 13

June 13, 2011

EQ US equities more than reversed the previous session’s gains and fell sharply across sectors on Friday; the S&P 500 lost 1.4% to 1270.98, led by oil & gas (-1.9%), ending down 2.2% versus a week ago to mark a sixth consecutive weekly decline; the Dow fell 1.4% on Friday to close below 12k at 11951.91; Euro Stoxx 50 fell 1.6%, also down across sectors, losing 1.2% from a week ago

FI USTs rose as risk aversion remained elevated amid signs of slowing global growth and the lack of consensus among policymakers on a solution for Greece; the yield on the 10yr benchmark fell 3bps to 2.969%, ending below 3% for a sixth consecutive session; Bunds rose sharply and the 10yr yield fell below 3%, down 7bps to 2.958%; peripheral Euro area 10yr debt ended weaker; the yield on the Greek 10yr rose 10bps to 16.3%

FX The euro fell broadly on Friday and lost 1.1% versus the dollar to 1.434, down 1.7% over the week; EUR/GBP fell 0.2% to 0.885 although sterling was down broadly versus other major currencies as the risk climate weakened and UK industrial production figures disappointed; Cable lost 0.8% to 1.623, hovering near the 100-day moving average of 1.624; the US dollar index rose for a third consecutive day on Friday, up 1.4% from a week ago at 74.83

OIL Saudi Arabia will reportedly boost crude output to 10m barrels per day in July from 8.8m bpd in May, which put downward pressure on crude prices on Friday; the Jul’11 Brent contract lost 1.0% over the session to $118.38bbl but the intraday of $120.07bbl was the highest since 5 May; WTI dropped 2.8% to $98.85bbl, down 0.9% on the week

$ The Fed proposed to expand an annual exam of capital-planning (including plans for capital distributions such as dividend payments) to the 35 largest US lenders with assets of at least $50bn; the reviews would begin in early 2012; previously this type of analysis was applied to the largest 19 US bank holding companies

$ Fed’s Dudley (voter) said there is “a considerable way to go to meet the Fed’s dual mandate,” signaling no change in the ultra-accommodative stance; data suggests Q2 growth remained subpar, and although a pick-up is expected in the second half, the recovery will probably remain “painfully slow” for the unemployed and underemployed; headline inflation has risen above desired levels but underlying inflation trends, including core inflation, remain below levels consistent with price stability

€ Eurogroup’s Juncker said Saturday that the new aid package for Greece must include voluntary participation from private sector creditors; any default by Greece would disrupt the ECB’s “accompanying programmes”; a “reprofiling” does not mean a total refinancing

€ ECB’s Constancio said that President Trichet had not excluded extensions of the maturities of Greek debt, but the ECB later issued a clarification: “President Trichet made clear that the ECB’s Governing Council excludes all concepts that are not purely voluntary or have any element of compulsion, that entail any credit event or that entail any default or selective default”; Constancio said that a decision on such matters is the responsibility of Eurozone governments; the ECB will follow its rules and liquidity operations framework when it comes to issues of collateral and counterparties

€ German Finance Minister Schaeuble: "If there are doubts about the ability of Greece to pay back its debt and we must win time with a new package, then the participation of the private sector in the solution is unavoidable”; he reiterated his call for a debt swap that would extend maturities on Greek debt for 7 years; the Bundestag, in a non-binding vote on Friday, backed more conditional aid for Greece

€ ECB’s Gonzalez-Paramo: Spain must “continue improving public finances, to also reduce the contagion effects of the sovereign debt crisis on the banking sector”

£ BoE’s Haldane: the BoE’s Financial Policy Committee (FPC) “will need some tools — so-called macro-prudential regulation. That means applying the brakes when credit is running out of control to reduce the risk of a financial pile-up. But, as importantly, it may also mean the FPC releasing the brakes when credit is stalled at the roadside. That might call for a loosening of the regulatory reins to inject some life into credit markets"

$ US import prices rose 0.2%MoM in May versus a revised gain of 2.1% in April (originally +2.2%), coming in above the consensus forecast for a decline of 0.7%; autos & parts prices rose 0.5% vs. +0.2% previously and capital goods prices rose 0.2% vs. 0.1% in April; crude prices fell 1.7%MoM in May versus +7.9% previously; food & beverage prices fell 0.5% versus +2.0% in April

€ The German national CPI was confirmed at 2.3%YoY in May versus 2.4% in April; some services prices moderated in May after gains in April that may have been tied to the Easter holiday; the EU-harmonized CPI was confirmed at +2.4%YoY in May after spiking to 2.7% in April

€ Italian GDP growth was confirmed at a steady pace of +0.1%QoQ in Q1; net exports added 0.2ppts to headline growth in Q1 vs. -0.7ppts in Q4, but inventories weighed negatively (-0.3ppts) and household consumption growth slowed for a second quarter, up just 0.2% in Q1 versus +0.3% in Q4

£ UK BoE Inflation Attitudes: expectations for inflation over the next year decreased marginally to 3.9% in May from 4.0% recorded in the February survey, but were still higher than 3.3% in May’10; the current rate of inflation was judged at 4.5% vs. 4.4% in February

£ UK industrial production fell 1.7%MoM in April, down across manufacturing, mining, and utilities to disappoint versus the median forecast for a flat pace; the March gain was revised down to 0.2% from +0.3% reported originally; manufacturing output fell 1.5% versus +0.2% in April; companies reported that the extra bank holiday in April and disruption from the disaster in Japan influenced the fall in output; transport equipment production fell 4.1%MoM

£ UK producer input prices fell for the first time since August, down 2.0%MoM in May versus a revised increase of 2.8% in April (originally +2.6%); output prices slowed, up 0.2%MoM vs. +1.0% previously, and the annual increase moderated to 5.3% from 5.5%; core output prices excluding food, beverages, tobacco and petroleum products rose 0.2%MoM in May versus +0.8% previously

£ UK NIESR GDP growth estimate was +0.4% for the three months to May versus +0.1% for the three months to April (originally +0.3%)

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