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Financial Markets: Headlines for August 26

August 26, 2011

EQ Stocks fell in the US and across Europe on Thursday, while US Treasuries and the dollar rose and gold stabilized; the S&P 500 declined broadly across sectors and lost 1.6% to 1159.27, although S&P bank shares rose 1.9% on the news that Berkshire Hathaway (BRK, -2.5%, $68.99) will make a $5bn preferred equity investment in Bank of America (BAC, +9.4%, $7.65); volatility remained high and the Dax dropped intraday by 4.0% before paring declines to -1.7% (5584.14), amid rumours that Germany’s credit rating could be downgraded and that it might widen its short-selling ban; the Stoxx 600 fell 1.2% led by oil & gas shares (-2.2%)

FI US Treasuries rose during the US session amid declines in equities, hanging onto gains after the 7yr note auction; the yield on the 10yr benchmark fell 7bps to 2.229% and the 30yr yield declined 5bps to 3.601%, although this was up 4bps from a week ago; the Sep’11 German bund future rose 30 ticks to 134.84; peripheral government debt was mixed but Ireland outperformed; the Irish 10yr yield fell 22ps to 8.71%, down 86bps over the past week

FX The dollar rose against most major currencies although NOK and CAD outperformed; the euro lost 0.3% versus the dollar to 1.438 and cable dropped 0.5% to 1.629; USD/JPY rose 0.7% to 77.52, the highest level since August 8, amid broad yen weakness; the franc was mixed on the crosses and gained 0.2% against the dollar (0.793); gold stemmed two days of declines; the Dec’11 gold contract was up 0.8% over Thursday to $1774.6oz after the US close

OIL Brent fell along with equities in the early part of the US session before stabilizing back above $110, up 0.4% on the day at $110.3bbl; WTI traded choppily as well but ended flat at $85bbl

$ Late on Thursday the CME lowered margin requirements on crude oil futures by 4% to $6k per contract; earlier the CME had raised maintenance margins for trading Comex 100oz gold futures by 27% to $7k per contract, effective on August 25 after the close of business; this followed the 22% increase made on August 10

$ The US sold $29bn in 7yr notes at a yield of 1.58%, down 70bps from the yield at the previous auction on July 28; the bid/cover ratio of 2.76 was the highest since May but below the 10-auction average of 2.82%; indirect bidders took 51.7%, the highest share since January

$ Fed’s Hoenig (non-voter) does not anticipate a double-dip recession and put the chance at 20%; he said the Philly and Richmond Fed manufacturing surveys may have reflected financial market uncertainty; Congress should focus on repairing the fiscal situation which would support confidence

$ The ECB accessed the Fed’s fx swap facility for $500m in the week to August 24, at an interest rate of 1.10%; last week’s 1wk swap with the Swiss National Bank matured ($200m at 1.08%)

€ The ECB and BoE announced an extension of the temporary reciprocal swap agreement (swap line) until 28 September 2012; the BoE would swap up to £10bn in exchange for euros if necessary

€ The 3 major ratings agencies affirmed Germany’s AAA rating – CNBC

€ Germany is not planning a general ban on short-selling according to a spokesman from the FinMin

€ France, Italy, Spain and Belgium’s financial regulators extended the ban on short-selling financial shares; Italy and Spain specified that the bans would continue to September 30

€ The Bank of Greece has reportedly readied the Emergency Liquidity Assistance (ELA) scheme for providing liquidity to banks – Imerisia financial daily

€ Private sector banks’ involvement in the Greek debt swap is reportedly about 50% so far versus the goal of 90% – the current deadline for expressing interest is September 9 – Reuters

€ The IMF expects to complete its 5th review of Greece’s reform programme on September 5 and could decide on release of the next tranche of loans toward the end of next month

£ BoE MPC member Weale (who voted for a rate hike as recently as July) does not believe there is a case for QE at the moment – the economy is weaker than the MPC would like but the picture is not like summer 2008; still the BoE could do more if there is further weakening of inflation pressures and growth does not pick up following the substantial rebalancing underway; more QE could still stimulate the economy by exerting a downward effect on yields at the longer end of the curve; weak growth in Europe is “cause for concern”; the UK also faces financial contagion from Europe and the US

$ US initial jobless claims rose to 417k in the week to August 20 and the previous week’s claims were revised up to 412k (originally 408k); the result was above the consensus forecast of 405k and led to an uptick of 4k in the 4wk moving average to 408k, although this average was still lower than a month ago; according to the Labor Department, claims were elevated by at least 8.5k due to a labor dispute at Verizon Communications, vs. +12.5k in the previous week; the lagging figures on continuing claims showed a decline of 80k to 3.641m in the week to August 13 (which was the survey week for the NFP report), the lowest level since end-Sep’08

€ German GfK consumer confidence fell to 5.2 in September versus 5.3 in August (downwardly revised from 5.4); confidence was marginally stronger than expected by the median forecast of 5.1, but is down at the level of Nov’10; the measure of price expectations moderated further to the lowest level since March; income expectations fell to a 3-month low; according to GfK the Euro area debt crisis and lower stock market values are only having a small impact on confidence so far, as German sentiment remains supported by good domestic conditions including rising incomes and falling unemployment

£ UK CBI reported retail sales balance dropped to -14 in August from -5 in July, disappointing versus the consensus forecast of -10, now at the lowest since May’10; the survey was conducted between 28 July and 16 August 2011 so included the period of the England riots; the volume of orders placed by retailers contracted for a 3rd consecutive month, and at a faster pace, signaling pessimism about the outlook; retailers’ judgment about the business situation was the weakest since May’09

£ UK Nationwide consumer confidence fell to 49 in July from 51 in June, surprising versus the median forecast of 45 at a level slightly above the 6-month average of 48

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