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Financial Markets: Headlines for June 17

June 17, 2011

EQ European equity indices fell again as Greece’s domestic politics and the forthcoming EU/IMF decisions remained key risk drivers, but losses were more moderate, with the Stoxx 600 down 0.5% versus Wednesday’s drop of -1.1%; the Greek bourse lost 2.8% and is down 15% year-to-date; US equities rose modestly in the early part of the session after jobless claims came in lower versus the previous week and housing starts posted a small gain; the Dow managed to close 0.5% higher at 11961.52 led by oil & gas and consumer-related stocks

FI US Treasuries posted further gains and the 2yr yield hit a new 2011 low of 0.337% before ending the session flat at 0.375%; the 10yr yield fell 5bps to 2.922%, back at the lowest since early-December; the German 10yr cash yield fell 4bps to 2.913%; peripheral debt weakened broadly amid worries about Greece and the tepid results at the Spanish bond auctions; the yield on the Spanish 10yr rose 11bps on the day to 5.64%; the yield on the Greek 2yr surged another 160bps to 28.6%; the iTraxx W. European 5yr sovereign CDS index rose to a record high of 230.08 versus the previous peak of 221 reached on January 10th

FX Moves in forex were more muted following Wednesday’s rush to safe havens; the euro fell to a new record low of 1.195 against the Swiss franc before cutting losses to 1.206, still down 0.2% on the day; EUR/USD ended the US session flat at 1.421, stabilizing after Wednesday’s sharp drop of 1.8%; the dollar fell 0.4% against the Swiss franc and yen, which both rose broadly

OIL WTI crude stabilized at the lowest levels since February and at $94.99bbl remained below the 200dma; Aug’11 Brent crude rose 0.3% to $114.11bbl

€ Greek PM Papandreou’s cabinet reshuffle will take place today; he will “continue to seek wider consensus…and to stay on our course of reforms”

€ The IMF stands ready to continue supporting Greece; progress is being made in talks to ensure that Greece will be fully financed and the IMF expects a positive outcome at the Eurogroup meeting; Greece must adopt the already agreed programme of economic policy reforms

€ EU Economic Commissioner Rehn confirmed a two-stage approach on the Greek decisions: this Sunday the Eurogroup will decide on the disbursement of the fifth tranche of aid scheduled for early-July; they will also discuss the “successor programme for Greece, and the nature of private sector involvement in this, with a the view to taking decisions at the next Eurogroup meeting of July 11"

€ Spain sold €2.8bn in 2026 and 2019 bonds, at the low end of the €2.5-3.5bn target range; the Treasury sold €1.5bn in 5.9% 2026 bonds at an average yield of 6.027%, with bid/cover at 2.6; the €1.3bn issue of 4.3% 2019 bonds had an average yield of 5.352%; bid/cover of 2.1

€ ECB’s Bini Smaghi said it would violate ECB principles to extend the maturities of its bond holdings and/or to accept bonds as collateral from a state which is considered to have defaulted; “Greece is fundamentally solvent”; cohesion between the Greek government and opposition is necessary

€ ECB’s Mersch: "The disorderly insolvency of a Eurozone member state would have devastating consequences, not just for the country concerned but also for the currency union as a whole…the whole Eurozone banking sector would be threatened, and thereby that in the creditor countries too. A new financial crisis would be more than likely”

€ Irish deputy PM Gilmore: the question of imposing losses on the bondholders of Anglo Irish has to be discussed with the ECB

€ ECB’s Liikanen: signaled that “strong vigilance” remains appropriate; "For 2012, inflationary pressures are projected to weaken. Ultimately, it is the responsibility of monetary policy to ensure that this moderation will take place"

€ Italy PM Berlusconi on ECB Executive Board member Bini Smaghi: "There is an official request from the government for him to resign”; this is to facilitate the appointment of Bank of Italy’s Draghi to the ECB presidency

$ US Philly Fed manufacturing PMI fell to -7.7 in June from +3.9 in May and disappointed versus the consensus forecast for a bounce to +7.0; the index is now at the lowest level since Jul’09 at the start of the recovery; the new orders balance signaled a decline in orders at -7.6 vs. +5.4 previously; shipments remained in growth territory at 4.0 vs. 6.5; employment growth slowed, with the balance at 4.1 vs. 22.1 in May, below the 6m average of 16.3; input and output price growth eased

$ US initial jobless claims were lower-than-expected at 414k in the week to 11 June versus the median forecast of 420k and an upwardly revised 430k in the previous week (originally 427k); the 4wk moving average was unchanged versus a month ago; continuing claims fell 21k to 3.675m, the lowest since the recovery-low reached in the week to 16 April (3.659m)

$ US housing starts rose 3.5%MoM in May to an annualized pace of 560k after an April decline of 8.8% (originally -10.6%); the monthly gain was marginally below consensus at +4.2% and the pace remained below the 6m moving average (562k); building permits rose 8.7% and the annualized pace at 612k remained above that of housing starts for a 2nd month

€ The Eurozone CPI was confirmed at 2.7%YoY in May versus 2.8% in April; the core measure fell back to 1.5% from 1.6%; prices eased on the month for package holidays (-3.8%) and air transport (-4.0%) after the Easter holidays; energy prices also moderated, with transport fuel down 0.7%MoM and heating oil prices down 3.9%

€ Eurozone employment flat in Q1 versus a gain of 0.1%QoQ in Q4; employment up just 0.3% since the trough reached in Q4’09

£ UK retail sales fell 1.4%MoM in May and reversed the April gain of 1.1%; the result disappointed versus the consensus forecast for a smaller decline of -0.6%; excluding auto-fuel, sales fell 1.6% versus +1.2% in April; consumers cut back on nominal spending at food stores (-3.2% vs. +3.0%) and volumes fell sharply (-3.7% vs. +2.3%); sales volumes at non-food stores fell 0.4% versus +0.3% in April

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