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Financial Markets: Headlines for August 10

August 10, 2011

EQ US equity indices swung widely after the FOMC decision but ended stronger on Tuesday closing at intraday highs; the S&P 500 gained 4.7% to 1172.53 (although it was still down 12% over the past 2 weeks), as all sectors posted gains led by financials (+8.1%); the Dow regained the 11k mark, up 429pts to 11239.77; Euro Stoxx 50 clawed back 0.3% to 2294.24 after falling in the past 11 sessions, but European bourses were mixed Tuesday with the FTSE up 1.9%, the Dax down 0.1% and IBEX35 down 0.4%; the MSCI EM index lost 2.2%, paring an earlier intraday decline of 4.4%

FX The dollar fell broadly after the FOMC’s pledge to keep the fed funds target at an exceptionally low rate through mid-2013; USD/CHF plunged again to a record low and was down 4.3% on the day at 0.723 in post-close trade; USD/JPY touched a pre-fx intervention level of 76.70, down more than 1% from Monday; EUR/USD rose 1.2% after the decision to 1.439, remaining within recent ranges; gold endured a choppy session but the Sep’11 contract rose 1.2% to $1734.6oz

FI US Treasuries rose as the Fed altered its language about keeping rates low and yields fell across the curve, with the 2- and 5-year yields hitting record lows; the US 2yr yield fell 7bps over the session to 0.192%; the 30yr yield briefly fell below 3.5%, ending down 3bps at 3.618% versus 3.910% a week ago; in the European session, the German 10yr cash yield rose 10bps to 2.362%; yields fell on PIIGS government debt excluding Greece as the ECB remained in the bond market; the yield on the Italian 10yr fell 12bps to 5.146%; the iTraxx W. European 5yr sovereign CDS index fell further, down 3bps to 276.3; iTraxx 5yr Crossover continued to rise, up 16bps to 592.5

OIL WTI crude finished the US session above $80bbl, up 0.7% to $81.64bbl, after a choppy day in which it fell to an intraday low of $75.71bbl in Asian trade

$ The US sold $32bn in 3yr notes at a high yield of 0.50%, the lowest on record since May 1981, below the when-issued rate of 0.515% and 0.67% at the July auction; the bid/cover ratio was stronger at 3.29 versus 3.22 in July and above the 6-auction average of 3.21; indirect bidders took 47.9%, the highest share since May 2010 (50.7%)

$ The FOMC enhanced the guidance on the length of time that monetary accommodation will be left in place; economic conditions are now seen as “likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013”, rather than “for an extended period”; the FOMC also signaled preparedness to act further if deemed necessary and expressed disappointment with the pace of economic growth so far in 2011; growth “has been considerably slower…than expected” and downside risks have increased

$ US Treasury statement: "Secretary Geithner and [Chinese] Vice Premier Wang spoke by telephone today about both the U.S. and China, as well as challenges facing the global economy and the state of global financial markets"

€ Greece sold €812.5m in 6-month bills, above the target amount of €625m; the bid/cover ratio was stronger at 3.06 vs. 2.88 at the previous similar auction on July 12; the average yield fell marginally to 4.85% from 4.90% in July

€ ECB President Trichet: "What we ask is that all the [Eurozone leaders’] decisions which were taken on July 21 be put into effect as quickly as possible"

€ ECB’s Nowotny: “the banks are becoming cautious in giving loans, that they are parking money in growing amounts in the central banks and also at the ECB, so the bank deposits at the ECB have risen sharply and this is not a good sign, and it is important here to bring about stability and security”

£ UK industrial production was flat in June and declined 1.6% from the previous quarter, which will have a “minimal downward impact” on Q2 GDP calculations according to the statistics office; manufacturing output fell 0.4%MoM versus +1.8% in May, disappointing versus consensus at +0.2%, led by declines in the transport equipment industries (-1.7%) and the paper, printing & publishing industries (-1.2%)

£ UK visible trade deficit widened to £8.9bn in June from £8.5bn in May, the widest since December and above the consensus forecast of £8.1bn; June exports fell 4.8%MoM and were the weakest since December; imports fell 2.4% on the month

£ UK NIESR GDP growth estimate was +0.6% for the 3 months through July versus +0.2% in Q2

£ UK BRC same-store retail sales rose 0.6%YoY in July versus -0.6% in June; when smoothed over 3 months, same store sales remained weak, down 0.6% from the same period of a year ago

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