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Financial Markets: Headlines for June 14

June 14, 2011

EQ US equities rose slightly at the start of the week on some M&A news, following Friday’s sharp declines; the S&P gained 0.1% to 1271.83 in mixed sector performance, with financials up 1.0% while oil & gas shares slumped 1.3%; in Europe the Stoxx 600 rose 0.2% although bourses closed weaker across most of the periphery (Greece -0.8%; Portugal -0.1%)

FI USTs strengthened early in the US session as comments from Fed’s Lacker sounded dovish and S&P cut Greece’s credit rating by 3 notches to CCC after the European close; the yield on the US 2yr fell 1bp to 0.392%; the curve was slightly steeper by the end of the session as the longer-end reversed gains; Bunds stabilized Monday and the 10yr yield remained below 3% at 2.955%; Greek, Irish and Portuguese 5yr CDS rose to record highs

FX The US dollar fell broadly, losing 0.7% versus the Swiss franc to 0.837 and 0.1% against the yen to 80.22; EUR/USD gained 0.4% to 1.441 despite news of the Greek downgrade, although the euro hit a new record low of 1.2004 versus the franc and ended down 0.2% from Friday’s close at 1.207

OIL The Jul’11 Brent contract rose 0.2% to $118.8bbl while WTI fell 2% to $96.9bbl, pushing the premium to a new record high above $21bbl

$ Fed’s Lacker (non-voter) sounded downbeat about the recovery and is in the process of revising down his economic forecasts, but he said he is wary of using monetary policy to address disappointing growth “without a clear diagnosis for the reason”; the reluctance of employers to hire despite rising demand is a sign that growth could underperform for a sustained period

€ Greece’s sovereign debt rating was cut 3 notches by Standard & Poor’s to CCC from B and remains on CreditWatch negative; reflecting greater chance of default linked to efforts to close the emerging financing gap; the short-term rating was affirmed at C; the agency said that private sector burden sharing through debt exchange or maturity extension would be viewed as a de facto default, since the terms for creditors would likely be less favourable than the debt being refinanced; in that case Greece’s rating would be lowered to “selective default”

€ ECB President Trichet: governments must avoid compulsory debt restructuring, credit events or selective defaults; he reiterated that there are upside risks to price stability and that second-round effects must be avoided; the recovery is now more firmly established; the Eurozone must create institutions that are commensurate with a full economic and monetary union

€ ECB’s Nowotny does not expect a double-dip recession in the US and is more concerned about the effect of “cooling measures” that could be applied in fast-growing developing economies

£ BoE MPC member Weale continued to indicate support for a hike in Bank Rate, and said a hike now could mean that policy could be looser on average over the next 3 years; a hike could also “reduce the speculation that the Bank has departed from its inflation mandate”

€ Italian industrial production jumped 1.0%MoM in April, up for a third consecutive month, and exceeded the median market forecast at +0.2%; the March gain was upwardly revised to +0.7% (originally +0.4%)

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