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Financial Markets: Headlines for August 15

August 16, 2011

FX Overnight the Japanese government vowed to take decisive moves against rapid fx moves if necessary and urged the BoJ to underpin the economy through appropriate and flexible monetary policy; the Swiss National Bank is reportedly in discussions with the government about setting a lower limit for the EUR/CHF exchange rate, likely around 1.10; the Swiss gov’t could approve this policy on Wednesday – SonntagsZeitung newspaper

EQ Equities ended stronger on Friday after a week of extreme oscillations and policy action from central banks and national regulators; the S&P 500 cut the volatile week’s losses to 1.7%, falling only briefly on Friday after the dismal US consumer confidence figures and ending the session up 0.5% at 1178.81; Stoxx 600 gained 3.7% on Friday led by financials (+4.4%) as France, Italy, Spain and Belgium instituted bans on the short-sale of financial shares, which overshadowed disappointing economic figures on Eurozone industrial production and French GDP; Stoxx 600 cut the week’s losses to 0.6%

FI The US 2yr has stabilized after the post-FOMC price surge with the yield at 0.179%, down 11bps over last week and -17bps from a month ago; investors moved into longer-end USTs on Friday and the US 10yr yield fell 10bps to 2.239%, down 32bps from a week ago to mark the sharpest weekly yield decline since Dec’08; the 30yr recouped some of the post-auction losses and the yield moderated 10bps on Friday to 3.698%, down 13bps on the week; the benchmark Bund future declined 30 ticks to 133.0 as European equities strengthened; 10yr cash yields fell on Italian, Spanish and Portuguese bonds on Friday as the ECB remained active; the Italian 10yr yield fell 1bp to 4.999%, down more than 100bps on the week; the Italian 5yr Sr CDS inched down 27bps on the week to 359.3

FX The franc fell across the board versus major currencies on Friday as upward momentum remained stymied by the signals from the SNB; USD/CHF rose for a third session, up 1.2% to 0.77, and was back at the levels of 4 August; USD/JPY remained at near record weakness and ended flat at 76.9; the euro finished little changed versus the dollar at 1.424 and was flat on the week

OIL The TR/J CRB commodities index rose for a third consecutive session, ending down just 0.1% on the week at 326.5; WTI crude for Sep’11 delivery rose intraday to a 1wk high of $87.37bbl but moderated back to $85.3 after the US close

¥ Japanese GDP fell 0.3% in Q2 versus the consensus forecast for a steeper decline of -0.6%; Q1 decline unrevised at -0.9%

$ Fed’s Kocherlakota dissented in last week’s FOMC decision because he saw no need for policy that was more accommodative

$ NY Fed President Dudley (voter) said the Fed does not expect a double-dip recession but he has revised down his expectations for the pace of recovery going forward; clearly not all of the weakness seen in H1 were from temporary factors; he said that the US rating downgrade by S&P should “reinforce commitment to long-term fiscal consolidation”

$ US advance figures on July retail sales showed a gain of 0.5%MoM as expected, while the June increase was revised up to 0.3% (originally +0.1%); nominal sales at gasoline stations rose 1.6%MoM in July versus -1.7% in June, likely reflecting the rise in prices over the month; auto sales rose 0.4% vs. +0.7% previously; core sales ex-gas, autos, & building materials rose 0.3% vs. +0.4% in June, with gains posted across 7 of the 10 major categories; the 3m annualized core rate continued to outline slower spending, at only +4.0% in July versus +5.3% in Q2 and +7.6% in Q1

$ US UMich preliminary August consumer confidence slumped to the lowest level since May 1980 during the recession, down at 54.9 versus 63.7 in July to disappoint sharply versus consensus at 62.0; the expectations measure dropped 10.3pts to 45.7, also the lowest since May 1980; the current conditions index fell 6.5pts to 69.3, the weakest since Nov’09; measures of inflation expectations were unchanged, with the 1yr at 3.4% and the 5yr, longer-term measure at 2.9%, still consistent with the 10yr average

$ US business inventories rose 0.3%MoM in June, the smallest increase since May’10, versus a gain of 0.9% in May; sales rebounded 0.4% versus -0.1% in May; the inventory-to-sales ratio held at 1.28, consistent with the pre-crisis average recorded over 2005-2007

€ Germany and the EU Commission said they support the short-selling bans put in place on Friday by France, Italy, Spain and Belgium; the German Finance Ministry will push for a Europe-wide ban on naked short selling of stocks, government bonds, and CDS – to counter “destructive speculation”

€ Spain’s Economy Minister Salgado said it cannot be ruled out that other countries would join the short-selling ban on financial stocks; she expects French President Sarkozy and German Chancellor Merkel to announce a commitment to improve Eurozone governance

€ Italy announced an austerity plan that would cut budgets by €20bn in 2012 and €25bn in 2013 to bring the budget into balance; there will be special levies on incomes over €90k; a higher tax on financial income; a nearer date for increased retirement age for women in the private sector (2015 rather than 2020); some provincial governments will be abolished

€ Portugal: The EU/IMF representatives completed their quarterly review of Portugal and said that the economic program “is on track”; Portugal should receive the €11.5bn second aid tranche in September, as part of the €78bn rescue

€ Eurozone industrial production fell 0.7%MoM in June, disappointing versus the flat consensus forecast and down across all major categories in largest decline since Sep’10 (also -0.7%); production rose 0.2% in May (revised from +0.1%)

€ French GDP was flat in Q2 according to the preliminary figures following the sharp gain of 0.9% recorded in Q1; the result disappointed versus the median forecast for an increase of 0.3%

€ The French CPI fell to 1.9%YoY in July from 2.1% in June, coming in below the consensus forecast of 2.2% at the lowest level since February (1.7%)

€ The final Italian July CPI was confirmed at 2.7%, steady vs. June; the EU harmonized measure fell to 2.1% from 3.0% in Jun

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