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Financial Markets: Headlines for June 22

June 22, 2011

EQ Euro Stoxx 50 bounced to the highest close since 1 June, up 2.0% to 2801.99, on optimism that PM Papandreou would win the confidence vote; the S&P 500 rose for a fourth consecutive session and approached the 1300 mark, up 1.3% to 1295.52, stronger across all sectors on Tuesday led by basic materials (+3.0%) and technology (+2.0%); the CBOE VIX volatility index fell to 18.86, down from 24.65 reached in the middle of last week

FI USTs declined modestly and the yield on the 10yr benchmark rose 2bps to 2.980%; Bunds fell as well and the 10yr German cash yield rose 1bp to 2.977%, but remained below 3% for a fourth full session; Euro area peripheral government bonds rose on hopes about the Greek political process and the change to the European Stability Mechanism announced Monday; the yield on the Spanish 10yr fell 10bps to 5.483%, the lowest close in 5 sessions; the yield on the Greek 2yr fell 84bps to 26.4%

FX The euro rose 0.7% versus the dollar to 1.441, hitting the highest level in a week; the US dollar fell across the board and lost 0.9% versus CAD to 0.971; Cable rose 0.3% to 1.624, reversing its earlier losses tied to dovish-sounding comments from BoE MPC member Fisher and somewhat disappointing public finance figures

OIL The Aug’11 Brent contract fell 1.1% to $110.55bbl and touched the lowest level since May 24, while August WTI ended the US session little changed at $93.67bbl; gold rose for a sixth consecutive session, up 0.3% to $1547.20oz

€ The socialist government of PM Papandreou won the vote of confidence in the Greek parliament early on Wednesday morning, removing one hurdle to the approval of the fiscal reform and privatisation programme

€ German Chancellor Merkel: a solution to Greece’s sovereign debt crisis requires EU solidarity, Greek commitment to the programme, and the voluntary participation of banks

€ IMF Managing Director Lipsky: "At the heart of the Greek programme are the policy adjustments. If they are not approved, then the bedrock of the programme does not exist"

€ Greece sold €1.625bn in 3-month bills at an average yield of 4.62%, up 56bps from the yield at the previous similar auction on May 17; the bid/cover ratio was lower at 2.94 versus 3.30 previously, the lowest this year at a 3-month auction; foreign investors bought about 32% of the issue

€ Spain sold €3.0bn in 3-month (€0.6bn) and 6-month (€2.4bn) bills on Tuesday, at the upper-end of the €2.25-3.25bn target range; the yield at the 3m sale was up 19bps to 1.568% versus the previous auction in May, but the bid/cover ratio was higher at 9.5 vs. 6.6 previously; the yield at the 6m auction rose just 1bp to 1.776%; b/c lower at 3.84 vs. 5.46

£ BoE’s Fisher: policy tightening to counter recent price shocks would have needed to be “very material” and “would have engendered a worse outcome on all counts”; QE is still on the table as a possible policy action to fight the risk of deflation in the medium-term

$ US Treasury Secretary Geithner said the US will have a bipartisan agreement to raise the debt ceiling and control spending but spending must not be cut precipitously in the short-term which could hurt growth

$ US existing home sales fell 3.8%MoM in May, surprising modestly versus consensus at -5.0% but the April figure was revised to -1.8% (originally -0.8%); the annualized pace fell to a 6-month low of 4.81m, below the “great recession” average of 4.83m

€ German ZEW economic sentiment fell for a fourth consecutive month to -9.0 in June versus +3.1 in May; the result disappointed versus the consensus forecast of -3.0 and was the weakest since Jan’09; the current situation index fell from May’s series high of 91.5 to 87.6 in May

£ UK CBI industrial trends: the total orders balance stabilized at +1 in June versus -2 in May and -11 in April; expectations about output in the next three months weakened, with the balance down at +13 in June versus +20 in May and the 6m average of 20

£ UK public finances: public sector net borrowing was £15.2bn in May versus £7.7bn in April, but was down from the year-ago figure of £17.1bn; the budget deficit including the financial sector interventions was £13.1bn in May and on a fiscal year-to-date basis was up 7% from 2010

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