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Financial Markets: Headlines for July 19

July 19, 2011

EQ US equities tracked European indices lower led by financials; the S&P 500 fell below 1300 in the middle of the session, paring losses to end down 0.8% on the day at 1305.44; Friday’s bank stress tests did little to ease investor concern about the health of European banks since the exercise did not assume a large haircut or default on Greek sovereign debt; peripheral Euro area markets remained under pressure as the details of the next Greek financing plan and a broadened EFSF remain unknown ahead of this week’s EU leaders’ summit; European equities fell sharply and broadly across sectors; Euro Stoxx 50 declined 2.0% with financials down 3.6%; Italy’s FTSE MIB fell 3.1% and was down 11.3% YTD

$ The CBOE VIX index rose intraday to a 1-month high and closed up 7.3% at 20.95

FI USTs rose early in the session but then reversed gains to close little changed on the day, although the 30yr bond underperformed (+5bps to 4.308%) as hopes of reaching agreement on substantial, long-term US deficit reduction faded; the benchmark Bund future rose 45 ticks to 129.44; Euro area government debt was under pressure across the periphery including Italy and Belgium; the yield on the Italian 10yr hit a euro-era high above 6%, ending the session up 20bps at 5.955%; the Greek 2yr yield rose over 280bps to 34.5%

FX The dollar rose across the board against major currencies and bounced to 0.818 versus the Swiss franc after hitting a new record low of 0.805 early on Monday; EUR/CHF rose during the US session to end little changed versus Friday at 1.154, inching up from the record low hit earlier (1.138); EUR/USD declined 0.3% to 1.411; Gold prices hit new record highs despite the strengthening in the dollar; spot rose above $1600oz for the first time and the Sep’11 contract rose 1% on Monday to $1609oz

$ US Tsy Secretary Geithner on the debt ceiling debate: "Despite what you hear, people are moving closer together. You have seen the leadership of the Republican party…take default off the table. That’s encouraging"; Europe must act more forcefully to contain risks of a broader crisis

$ US President Obama said he would veto the Republican “cut, cap and balance” budget plan; White House spokesman Carney said that there must be a mechanism in place to ensure that no matter what happens, the US does not default

$ Fed’s Lockhart (non-voter) on the possibility of more QE: "The conditions we are facing now are not the conditions we faced last November when it was implemented. At that time we were looking at the potential for deflation in the economy”; he continues to expect growth that is “much stronger” over H2 and into 2012

€ Eurozone governments are reportedly considering a levy on banks as part of the private sector’s contribution in a Greek aid programme, alongside a bond-buyback – Die Welt

€ ECB’s Bini Smaghi: forcing private sector creditors to take losses on Greek bonds could end up costing taxpayers more, implying the risk that Greek banks could collapse

€ The ECB did not purchase any government bonds last week according to its weekly disclosure; ECB government bond holdings remained at €74bn

€ ECB’s Draghi: "Global systemic important banks will be subject to capital surcharges of between 1.0 and 2.5%”

£ UK BoE’s Tucker after a meeting of the Financial Stability Board: if a bank goes into “resolution” haircuts will be applied; "Equity holders and debt holders are going to take losses”

$ NAHB index of homebuilder sentiment rose to 15 in July from 13 in June, consistent with the 12-month moving average; builders judged the current and future pace of single family home sales as slightly stronger than in June; the index measuring traffic from prospective buyers remained at 12 but was up from 10 a year ago

$ US net long-term TIC flows were lower at $23.6bn in May versus $30.6bn in April and disappointed versus the consensus forecast of $40.0bn; foreigners made net sales of government agency bonds in May, at -$8.3bn versus purchases of $7.5bn in April; however, net purchases of Treasury notes and bonds were stronger at $38.0bn versus $23.3bn in April; in the YTD, foreigners’ net purchases of long-term securities were $638bn versus $711bn in the same period of 2010

 

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