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Financial Markets: Headlines for June 27

June 27, 2011

EQ The S&P 500 fell 1.2% on Friday and lost 0.2% over the week to close at 1268.45; declines were broad but led by oil & gas (-2.0%) and technology (-1.8%) shares, as crude prices continued to decline and Oracle (ORCL, -4.1%, $31.14) reported an unexpected drop in hardware sales; in Europe, initial optimism about the EU’s expressed support for Greece quickly faded and bank stocks fell sharply; the Stoxx 600 lost 0.1% and ended lower for an 8th consecutive week

FI US Treasuries rose further as risk aversion persisted ahead of the weekend; the US 2yr yield fell 1bp to 0.329%, close to the record low reached in Nov’10; the yield on the 10yr benchmark fell 5bps to 2.864%, down 8bps from a week ago; the Sep’11 Bund future rallied 26bps to 127.45; the Italian-German 10yr yield spread widened to a new record high of 214bps, up 28bps from a week ago amid concern about Italian banks; the Greek-German spread narrowed 3bps on the week to 1395bps

FX The euro fell back 0.8% to the record low level of 1.185 versus the Swiss franc; EUR/USD lost 0.5% to 1.478, down 0.9% on the week; the dollar index rose for a third consecutive session, although the franc and yen rose more broadly; cable ended the week at the lowest levels since-end March, down 0.3% on Friday to 1.596

OIL Crude prices fell further in the wake of the IEA’s decision to release emergency reserves; the Aug’11 Brent contract dropped 2.3% to $105.6bbl, down 7% over the week; the Aug’11 gold future fell below its 50dma, losing 1.3% on Friday to $1502.8oz

G20 Basel Committee on Banking Supervision agreed that the largest, most systemically important banks will have to hold an additional capital buffer of 1.0-2.5%, composed of core capital/common equity

$ Fed’s Fisher (voter) said the Fed has telegraphed its intentions “very clearly” and is not becoming “politically accommodative”; the Fed will reinvest proceeds from securities on its balance sheet for as long as is appropriate; he favors “greater specificity” on an inflation goal

$ US Tsy Sec. Geithner said some estimates attribute about 2/3 of the slowdown to temporary headwinds; growth in H1 is likely to be around 2%; there will be a deal on the debt ceiling – the question is whether it will be “good” for the economy

CNY Chinese premier Wen Jiabao: "I have confidence in European economic development. China is a long-term investor in Europe’s sovereign debt market. In recent years we have increased by a quite big margin holdings of euro bonds"

€ Greek PM Papandreou: last week’s “EU decision secures our country’s funding and its financial needs for the coming years … It’s certainly a condition for funding from the IMF. Therefore, I am certain that we will get the IMF’s green light on its financing”

€ EU Summit: the leaders appointed Mario Draghi as the next president of the ECB in a term that begins 1 November and extends through October 2019; ECB Executive Board member Bini Smaghi will reportedly resign from his post to make room for a French candidate

£ UK PM Cameron said that European banks should “make absolutely clear” their exposure to Greece

€ German Chancellor Merkel: it is in Europe’s interest to give Greece time “to find its way to a reasonable path"; a haircut on Greek debt is not an option because of contagion effects that cannot be controlled

€ French President Sarkozy on the involvement of the private sector in a Greek debt rollover: "We had many meetings with the banks and the insurance companies. There is no difficulty"

€ ECB’s Gonzalez Paramo said that "a temporary rise in market risk over one or two days obviously doesn’t change the diagnosis of economic policy", implying that a rate hike next month is still a good possibility; he said that “the crisis continues” and will not end soon; private sector participation in a new aid package would be helpful

€ ECB’s Stark: the ECB could no longer accept Greek bonds as collateral if there was a “credit event”, if the paper was downgraded to “selective default” or lower, or if the private sector was forced to take part in a restructuring

£ BoE MPC member Adam Posen said that the Euopean financial system has “to be fixed” to solve the crisis; "instead of putting still more money into rescue funds, Europe should create a trust for banks. National governments should be able to oblige this trust to recapitalise or wind down non-performing banks"

$ US Q1 GDP growth was revised up as expected to an annualized pace of 1.9% from 1.8% reported in the previous estimate, reflecting upward revisions to the change in inventories as well as net exports; final sales (GDP ex-inventories) to domestic purchasers rose just 0.4% in Q1 (originally +0.6%) versus +3.2% in Q4, the slowest pace since Q4’09; the price measure tied to core personal consumption expenditures was revised up to an annualized pace of 1.6% from +1.4% reported originally and was the strongest since Q4’09

$ US durable goods orders rose 1.9%MoM in May, exceeding the consensus forecast of +1.5% following the revised April decline of -3.6% (originally -2.7%); orders rebounded versus April for civilian aircraft (+36.5%MoM), defense goods (+3.9%), and core capital goods (+1.6%)

€ The German IFO business climate index defied expectations for a decline and rose 0.3pts in June to a 3-month high of 114.5; business conditions remained resilient and the index rose 1.8pts to a new series high of 123.3; however the business expectations index fell 1.1pts as expected to 106.3, now at the lowest level since Mar’10; the decline was led by deterioration in expectations within the manufacturing and retail sectors

€ French INSEE consumer confidence was steady at 83 in June, marginally below the 6-month moving average of 83.5

€ Italian retail sales rose 0.4%MoM in April versus a decline of 0.2% in March, surprising to the upside of consensus at -0.1%; in the three months through April, sales were flat versus the same period of a year ago

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