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Financial Markets: Headlines for August 12

August 12, 2011

€ EU financial market regulator ESMA said late Thursday that Belgium, France, Italy and Spain will announce new bans on short selling; the measures would take effect from August 12; ESMA also said it will take a firm stance against any short sellers who are found spreading rumours

EQ Equity indices again swung widely this time closing sharply higher; US stocks added to gains throughout the day, boosted initially by a US initial jobless claims figure which was below 400k; the S&P 500 rose 4.6% and erased Wednesday’s decline to end at 1172.64, supported by bargain hunting and some good corporate earnings reports; the Dow shot up 423pts to 11143.31; the CBOE Vix index moderated slightly to 39 versus 43.0 previously but was still far above the 50-day moving average of 21.7 and at the highest levels since May 2010; Euro Stoxx 50 seesawed but ended in positive territory across all components, up 2.9% to 2215.45; basic materials rose strongly (+4.4%) and financials gained 2.8% after Wednesday’s rout

FI USTs slumped amid the positive spasm in equities and the yield curve steepened, reflecting the weak results at the 30yr bond auction which tailed and had a bid/cover of only 2.08 vs. 2.80 previously; the yield on the 10yr benchmark shot up 18bps to 2.325% and the 30yr yield rocketed 25bps to 3.763%; the ECB was reportedly in the market buying Italian and Spanish bonds; the Italian 10yr yield fell 7bps to 5.018%; French 5yr sovereign CDS fell 6bps to 165.2bps

FX The Swiss franc plummeted following signals from the SNB that all options are on the table for weakening the franc including a forex peg to the euro or rate cuts to below zero; the euro rose a record 5.3% against the franc to 1.085 (following the near brush with parity on Wednesday); USD/CHF jumped 4.9% to 0.762; the dollar stabilized versus the yen at 76.83, still hovering only just slightly above the post WWII low of 76.25 struck in March; cable gained 0.6% to 1.624

CHF SNB Vice Chairman Jordan said that the SNB does not rule out any monetary policy measure to combat the rise in the franc; "We still have at the moment possibilities to make monetary policy more expansive without intervening in foreign exchange markets”, raising speculation that interest rates could be cut to negative levels or that the SNB could peg the franc to the euro

$ The US sold $16bn in 30yr notes but the auction tailed and drew weak demand; the bonds sold at a yield of 3.750% versus 3.655% in the market when issued, although still the lowest since Mar’09; the bid/cover ratio was only 2.08 versus 2.80 previously and the 10-auction average of 2.64; indirect bidders took 12.2% vs. 37.8% previously, the lowest share since Feb’08 (10.4%)

$ President Obama said he will put out new economic proposals week by week to boost growth and jobs; he does not support more spending cuts this year or next

$ US initial jobless claims came in lower at 395k in the week to August 6, below the consensus forecast of 405k and the previous week’s reading of 402k (originally 400k); this was the lowest reading since early April and kept the 4wk moving average on a downward trajectory, at 405k versus 424k a month ago; the lagging figures on continuing claims fell to 3.688m from 3.748m in the week to July 30 and were the lowest since mid-April

$ The US trade deficit rose to $53.1bn in June from a revised $50.8bn in May (originally $50.2bn) and was above the consensus forecast of $48.0bn; the ex-petrol deficit widened to $23.5bn vs. $20.2bn previously; US exports fell -2.3% vs. -0.5% previously, led down again by a fall in industrial supplies; capital goods exports also fell in June, down 3.6% vs. +0.9% previously; imports fell 0.8% in June, down broadly across major categories, versus +2.9% in May

$ US weekly consumer comfort index from Bloomberg fell to -49.1 in the week to August 7 from -47.6 previously and was the weakest since mid-May

€ ECB’s Noyer on French banks: "Their capital levels, boosted by strong equity capital, are adequate and their medium to long-term financing programmes are being carried out in perfectly satisfactory conditions”

€ ECB’s Mersch: the ECB has agreed on a toolkit of measures to monitor the use of ECB facilities by banks and are doing “final checks from the legal and operational point of view”; he said the probability of a renewed recession in Europe is “extremely low”; it is a “close call” on whether the ECB will shift its stance from seeing upside risks to price developments versus neutral risks; the direction of energy prices in the near term is far from certain

€ Italy’s government reportedly could call an emergency cabinet meeting for today to approve new austerity measures to balance the budget by 2013 – Reuters

€ EC spokeswoman Hughes said no aid plan is being discussed for Cyprus; decisions about reforms need to be taken in the country but the “economy is fundamentally healthy”; Fitch downgraded Cyprus on Wednesday to BBB from A- previously

€ German wholesale prices fell at a steady monthly pace of 0.6% in July and the annual pace moderated to 8.2%, down from 8.5% in June and the 2011 high of 10.9% recorded in March

£ UK Chancellor Osborne said the UK is committed to deficit reduction and will see through its fiscal cuts; Britain is not immune to international market turmoil, but government bonds have benefitted from the flight-to-safety; banks are sufficiently capitalized and have enough liquidity; "The break-up of the euro would be economically disastrous, including for Britain, and so we should accept the need for greater fiscal integration in the euro zone, while ensuring that we are not part of it"

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