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Financial Markets: Headlines for July 4

July 4, 2011

EQ Equities rallied last week as fears of a near-term Greek default receded, and got a late boost on Friday from the unexpected improvement in the US ISM manufacturing index; the S&P 500 rose for a fifth consecutive session, up 1.4% in light volumes to extend the week’s gains to 5.6%, recording the biggest weekly increase since July 2009; in European trade, the Stoxx 600 gained 0.8% on Friday and 4.1% on the week, halting 8 weeks of losses

$ The CBOE VIX volatility index declined 22.8% over the week to 15.87, ending below the 50dma (17.66) for a third consecutive session as investors’ most immediate fears about Greece were relieved mid-week

FI$ US Treasuries were under pressure throughout the week as some safe-haven positions were unwound and the Treasury sold $99bn in notes; USTs fell again on Friday as the ISM surprised to the upside and equities continued to rise; the yield on the 10yr benchmark rose 2bps on Friday to close 32bps higher on the week at 3.182%; the 2/10 spread widened 17.5bps to 271bps, the steepest since end-April

FI€ The Sep11 Bund future stabilized, losing 6 ticks on Friday to 125.42 but down 203 ticks on the week; 2yr Euro area periphery-Bund yield spreads compressed slightly further; the Greek-German 2yr spread narrowed 38bps on Friday to 2290bps, versus 2695bps a week ago

FX The Swiss franc fell across the board against major currencies on Friday to extend the week’s losses; EUR/CHF gained 0.8% on Friday to 1.231 and was up 3.9% from a week ago; EUR/USD rose 2.4% on the week but stabilized on Friday at 1.453; Cable was choppy but ended the week 0.6% stronger at 1.607

OIL Crude prices fell modestly on Friday after strong gains earlier in the week, Aug’11 WTI fell 0.7% on Friday to $94.76bbl and remained below the 200dma, although the contract was up 4.2% from a week ago; gold sank 1% on Friday to $1487.9oz and was down 5% from June’s high of $1559oz

€ The Eurogroup finance ministers pledged on Saturday to disburse “the fifth tranche of the current Greek loan facility by July 15 following approval by the IMF board” as they continue to work on a new Greek financing package over the next few weeks; the "precise modalities and scale" of private sector involvement in a second aid package for Greece would be worked out in the coming weeks, "so as to ensure that, inter alia, required programme financing is in place”

€ The IMF said that based on the pledge from the Eurozone finance ministers to prepare a new financing plan for Greece, it can now “consider” the completion of the current fiscal review and release of its portion of the aid tranche

€ ECB’s Noyer: "There is no plan B. Greece must carry through with this plan to have a durably healthy economy"; on a voluntary rollover of Greek debt held by banks: "Bondholders can consider that this sort of scheme is more interesting than to stick with the debt that they are holding today” but there are still technical and accounting issues to resolve

$ Fed’s Bullard (non-voter) on Thursday: "If the economy’s not performing well, then the committee should consider taking additional action…However the situation today is very different than last summer, especially on the inflation side”

$ The US ISM manufacturing index rose to 55.3 in June from 53.5 in May and surprised versus the consensus forecast of 52.0, although the index only recouped a quarter of the May drop of 6.9pts; production (54.5 vs. 54.0 previously) and new orders (51.6 vs. 51.0) rose at slightly faster paces in June; inventories jumped after the May contraction (54.1 vs. 48.7); employment growth accelerated (59.9 vs. 58.2); prices paid balance eased to 68.0 from 76.5 and was the lowest since Aug’10

$ US UMich final June consumer confidence was revised down to 71.5 from 71.8 reported in the preliminary estimate, now down 2.8pts from May; the negative revision was on account of weaker economic expectations for the next year, at 64.8 (originally 66.8) vs. 69.5 in May; the measure of current conditions was revised up to 82.0 (originally 79.6) and was up 0.1pt from May, which may reflect falling gasoline prices through the month; the 1-year measure of inflation expectations was revised down to 3.8% from 4.0% originally and was the lowest since a matching reading in Dec’10

$ US construction spending fell 0.6%MoM in May and the April figure was revised to -0.6% from +0.4% reported originally; the May decline was the sixth consecutive and highlights the continued drag on GDP into Q2 from the construction sector

$ US domestic vehicle sales slowed unexpectedly to an annualized pace of 8.95m in June versus 9.22m in May, down for a second consecutive month at the lowest since Sep’10

€ The Eurozone final June manufacturing PMI was confirmed at 52.0, the lowest since Dec’09, down from 54.6 in May and the YTD average of 56.4; activity growth slowed in Germany (54.6 vs. 57.7 in May) and France (52.5 vs. 54.9) and the PMIs showed contraction across Italy (49.9), Spain (47.3), Ireland (49.8) and Greece (45.5)

€ Eurozone unemployment rate was steady at 9.9%, down from the 2010 peak of 10.2% last recorded in October

£ The UK manufacturing PMI fell to 51.3 in June from a downwardly revised 52.0 in May (originally 52.1), disappointing versus the consensus forecast for an increase to 52.3; the June decline left the PMI at the lowest level since Sep’09; new orders contracted for a second consecutive month, although there was a modest rebound in production; input and output price growth slowed, partly reflecting declines in the price of oil and other commodities

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