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Financial Markets: Headlines for June 24

June 24, 2011

€ The EU leaders pledged late on Thursday to ensure financial stability in the Eurozone and said that Greece must approve the fiscal reform package to pave the way for “a new programme jointly supported by its euro area partners and the IMF and allow disbursement in time to meet Greece’s financing needs in July”; they agreed that additional financing will be necessary and endorsed the approach of the Eurogroup that would involve the private sector voluntarily; EU’s Van Rompuy said that the EU leaders endorsed the creation of the permanent Eurozone bailout fund (ESM) and the strengthening of the temporary fund (EFSF)

EQ US equities pared losses on a late report that the Greek government had reached an agreement with the EU and IMF on the 5-year fiscal strategy; the S&P 500 cut its intraday loss of 1.9% to -0.3% by the end of the session (1283.5); oil & gas shares were hit (-1.2%) by an IEA decision to release some crude reserves; European bourses fell sharply on Thursday and Euro Stoxx 50 lost 2.3% led by financials (-3.4%); concern about European banks’ exposure to Greece remained heightened, as the European Banking Authority made adjustments within the stress tests and credit rating agencies took further actions on some banks; adding to the negative tone, Thursday’s economic figures out of the Eurozone and US were broadly disappointing

FI $ Treasuries rose sharply but closed slightly off of the highest levels of the session; the yield on the 10yr benchmark fell 7bps to 2.913% and the 2yr yield fell 3bps to 0.342%; rates of 1m and 3m T-bills dipped into negative territory in morning trade

FI The Sep’11 German Bund future rallied 98 ticks to a new high of 127.19; the long Gilt future rose 62 ticks to 122.38; Euro area peripheral government debt remained under pressure and the iTraxx 5yr W. European sovereign CDS index rose 12.4pts to a 4-session high of 224.13

FX The euro fell broadly versus major currencies and dropped to a new record low versus the Swiss franc (1.185), cutting some losses to 1.196 by the end of the US session; EUR/USD declined 0.6% to 1.426; the dollar rose across the board as risk aversion intensified, crude prices fell, and investors continued to digest the FOMC communication; USD/JPY rose 0.3% to 80.53

OIL Crude prices fell sharply after the IEA announced that it will release 60m barrels of oil from emergency reserves to alleviate possible shortages due to loss of Libyan crude; the Brent Aug’11 contract fell 4.8% to $108.07bbl, the lowest since May 6; the WTI future fell 2.9% to $91.82bbl, well-below the 200dma of $95.79bbl

€ Greek FinMin Venizelos said it is critical to pass the mid-term austerity plan by 30 June; he announced several changes to tax policy and public spending plans; Greek banks & pension funds are willing to participate in a new financing programme

€ EU Economic Commissioner Rehn: talks with banks about a debt rollover should be “decentralised” and initiated through the national finance ministers; a Greek cross-party consensus on reforms is essential

€ Dutch PM Rutte: "In the Netherlands, as in other European countries, discussions have taken place with banks on private sector involvement in the rolling over of Greek debt"

€ The ECB lent €97.5bn to Greek banks as of end-May, up from €86.8bn at end-April

€ Finnish PM Katainen: "The economic situation in Europe has not exactly improved, and risk of a serious financial crisis and start of a new recession are very high at the moment"

€ Moody’s revised its outlook on the long-term debt and deposit ratings of 13 Italian banks to negative from stable; Standard & Poor’s downgraded Anglo Irish bank to CCC from CCC+ with a negative outlook

€ The European Banking Authority (EBA) said that within the stress test parameters, the haircuts on Greek debt held in the trading book have been adjusted to reflect market developments; banks have been given guidance “to address inconsistencies and excessive optimism” related to Greek debt holdings

€ Bank of Italy Governor Mario Draghi’s nomination to the ECB presidency was approved by the European Parliament

€ ECB’s Stark: "more and more rescue measures would be fatal without structural adjustments in the financial system and economic policy. The ECB is therefore beginning to take back its liquidity measures and to adjust interest rates"

$ The US will sell $35bn in 2-year notes on Monday, $35bn in 5yr on Tuesday, and $29bn in 7yr on Wednesday

$ The US talks led by Vice President Biden on the debt ceiling and spending cuts reached an impasse on Thursday as two Republicans pulled out

$ US initial jobless claims were higher at 429k in the week to 18 June versus 420k in the previous week which was upwardly revised from 414k; the result left claims above their month-ago level of 414k, in a bearish signal for June employment; the lagging figures on continuing claims showed a decline of just 1k to 3.697m in the week to 11 June

$ US new home sales fell less-than-expected in May, down 2.1%MoM versus consensus at -4.0% following a revised gain of +6.5% in April (originally +7.3%); the annualized pace at 319k was above the year-to-date average of 308k

€ The Eurozone advance PMIs fell more-than-expected in June; the manufacturing index fell to 52.0 from 54.6 and was the lowest since Dec’09, as activity growth slowed in both Germany (54.9) and France (52.5); the Eurozone manufacturing new orders balance signaled stagnation at 49.6 versus 53.3 in May; the services PMI fell to 54.2 from 56.0, back at the level of December, and business expectations remained at the lowest since Jul’09; in the Eurozone ex-France & Germany, output fell for the first time since Nov’09

€ Italian ISAE consumer confidence fell to 105.8 in June from 106.5 in May, but came in marginally above the consensus forecast of 105.3 and was stronger than the year-ago reading of 104.5

£ UK BBA loans approved for house purchase rose to 30.5k in May from a revised 29.7k in April (originally 29.4k), broadly in line with the recent trend; the 6-month moving average held at 30k for a 5th consecutive month

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