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Financial Markets: Headlines for August 25

August 25, 2011

EQ The Nikkei rose following the gains in US indices on Wednesday although US futures were trading lower after news of Steve Jobs’ resignation from Apple; US equities rose for a 3rd session on Wednesday amid some better-than-expected figures on July durable goods orders and June house prices although investors remain focused on Fed Chairman Bernanke’s upcoming speech in Jackson Hole on Friday; the S&P closed up 1.3% at 1177.60 again near the intraday high; the CBOE Vix index stabilized at 36; European bourses rose apart from in Greece (-2.0%) and the Stoxx 50 hit a 1wk high of 2238.70 (+1.8%); shares rose broadly across sectors; basic materials gained 2.9% and financials +1.8%

FI USTs sank and the curve steepened further as investors unwound some safe-haven positions and equities rallied; the Treasury sold 5yr notes in a well-bid auction at a record low yield; the yield on the 10yr benchmark jumped 15bps to 2.299% and the 30yr yield surged 16bps to 3.653%, the highest in a week; the 10yr gilt fell sharply as well and underperformed versus core Europe, with the yield up 8bps to 2.473%; German, French and peripheral Eurozone bonds fell broadly; the Greek 2yr yield rose to a new euro-era high, up 312bps to 40.3%

FX The dollar rose broadly versus major currencies on Wednesday ahead of the Jackson Hole summit and uncertainty about what Chairman Bernanke may signal; USD/JPY gained 0.5% versus the yen to 77.0 and maintained gains into the Asian session; EUR/USD lacked direction and fell 0.1% to 1.442; gold declined sharply for a second session and the Dec’11 contract lost nearly 4%, trading at $1756.3oz at the start of the Asian session, at the lowest levels since August 15

OIL Brent Oct’11 crude rose modestly on Wednesday, up 0.3% to $110.2bbl; WTI declined 1% to $85.12bbl

$ Steve Jobs resigned as chief executive of Apple and will become Chairman; Tim Cook (COO) will succeed as CEO

$ The US sold $35bn in 5yr notes at a sharply lower yield of 1.029% vs. 1.580% at the previous auction on July 27, although the yield was slightly higher than expected by the Bloomberg poll (1.021%); the bid/cover ratio of 2.71 was the strongest since May, up from 2.62 last month; indirect bidders took 42.1% vs. 36.6% in July, above the 10-auction average of 39.0%

$ US durable goods orders jumped 4.0%MoM in July, double the pace expected, and the June decline was revised to -1.3% from -2.1% reported originally; transportation orders surged led by vehicles & parts (+11.5% vs. +0.1% in June) and civilian aircraft (+43.4% vs. -24.0%); however, core capital goods orders fell 1.5% after two months of gains; shipments of core capital goods rose for a 3rd consecutive month, but at a slower pace of 0.2% vs. +1.9% in June; the 3m annualized pace of core goods shipments was robust at a 1yr high of 13.6% in July vs. 11.1% although signals from the August manufacturing surveys have signaled sharply weaker activity into Q3

$ US FHFA house-purchase prices fell 0.6%QoQ in Q2, disappointing versus consensus at -0.4%; the Q1 decline was revised to -2.6% (originally -2.5%); prices were down 20% from the peak reached in Q1’07; in June prices rose 0.9%MoM

€ The ECB had no bidders in the weekly USD tender versus last week when 1 bank took $0.5bn

€ German Chancellor Merkel maintained a hard line against euro bonds and said that mistakes in the Eurozone can only be corrected step-by-step; some nations will have to introduce further painful reforms; she again espoused the need for debt brakes in national constitutions

€ The German IFO business climate index fell to 108.7 in August from 112.9 in July, now the lowest since Jun’10 in a sharp disappointment versus the median forecast of 111.0; the expectations index posted the sharpest percentage drop since Nov’08, down for a sixth consecutive month to 100.1 vs. 105.0 previously and now below the historic average of 100.2; the current conditions measure declined for a 2nd month to 118.1 from 121.4, now at a 7-month low; broad deterioration was noted in business conditions and expectations across manufacturing, wholesale, construction, retail and services; the levels of the manufacturing indices now signal a downswing in the business cycle

€ Eurozone new industrial orders fell 0.7%MoM in June, disappointing versus consensus at +0.4%, following a strong May gain of 3.6%; orders growth in Q2 slowed to +2.7% versus +3.9% in Q1

¥ Japan’s Finance Ministry announced measures aimed at promoting more stability in the fx markets; major financial firms will be required to report daily on their fx positions through Sep. 30; a $100bn credit line will be opened for 1 year to facilitate Japanese companies “to exchange yen-denominated funds to foreign currencies by supporting exports…, securing energy resources and helping Japanese companies to purchase foreign businesses”; FinMin Noda said "we won’t exclude any options and will take decisive action when necessary. We decided to compile the package to show our strong determination that we will act if current yen rises persist, or if the yen rises further"; the Bank of Japan followed up and said they “will continue to carefully watch how currency moves will affect the economic and price outlook"

¥ Moody’s downgraded Japan’s credit rating early on Wednesday morning by one notch to Aa3 and said the outlook is stable; the downgrade was prompted by large budget deficits and the build-up in government debt since the 2009 global recession; frequent changes in administrations have prevented implementation of a long-term economic and fiscal strategy

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