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Financial Markets: Headlines for August 29

August 29, 2011

EQ The US stock and bond markets will open as usual today as NYC was spared the worst of Hurricane Irene; on Friday US equities endured another choppy session but closed higher and the S&P 500 ended a 4-week losing streak; the index declined 2% in immediate reaction to Fed Chairman Bernanke’s speech, which did not signal that more QE is imminent, but the index quickly reversed losses and ended up 1.5% on the day and +4.7% on the week at 1176.8, amid broad gains led by the tech sector (+2.3%); the Nasdaq composite rallied 2.5% to 2479.85; Euro area bourses posted declines on Friday although Stoxx 50 cut some losses after Chairman Bernanke’s speech, ending down 1.2% on Friday led by financials, but up 1.5% on the week following the losses of the previous 4 weeks

FI USTs rose in the run-up to Chairman Bernanke’s speech but pared gains after he did not signal imminent FOMC action or detail the various policy-easing options, but did announce a 1-day extension of the Sept FOMC meeting; the curve flattened, with the 10yr yield down 4bps to 2.190% and the 30yr -7bps to 3.535%; the 2/30 spread narrowed 5bps to 335 but was up from 320 a week ago; the benchmark Bund future rose as well and remained near record highs, but also pared gains after Chairman Bernanke’s comments, ending up 37 ticks at 135.21; other Euro area 10yr government bond yields fell as well, apart from Italy and Spain where yields stabilized at 5.047% and 4.971% respectively

FX EUR/USD surged briefly to 1.46 overnight after the US dollar fell broadly on Friday; the pair gained 1.2% over the week; USD/JPY declined 1.1% on Friday to 76.64, back below August 4 pre-intervention levels; the Swiss franc slid broadly and USD/CHF shot up 1.6% to 0.806; gold rose throughout the session and the Dec’11 contract hit an intraday high of $1832.5oz but was still down 1.3% over the week

OIL Crude rose as the dollar weakened and Hurricane Irene approached the US East Coast; the WTI Oct’11 contract gained 0.7% to $85.5bbl on Friday and was little changed at the start of the Asian session

G20 President Obama and German Chancellor Merkel spoke on Saturday: "the two leaders agreed on the importance of concerted action, including through the G20, to address current economic challenges and to spur growth and job creation in the global economy”

$ Fed Chairman Bernanke announced in his Jackson Hole speech that the September 20 FOMC meeting has been extended to 2-days “to allow a fuller discussion,” signaling that serious debate about policy-easing measures will continue in the near term; the Chairman did not announce any new monetary policy tactics – he merely restated that the Fed “is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability”

$ Fed’s Plosser (voter) is not sure that QE3 “would be beneficial to the kind of problems we’re facing"; he also reiterated his opposition to the change in the Fed language on rates made earlier in the month; "Monetary policy should be dictated on the state of the economy, not on the calendar. A lot can happen in two years — just look at the last two years"

$ USD 3m Libor rose further on Friday to 0.32278%, up 2bps on the week at the highest level since 20 August 2010

€ ECB President Trichet said Eurozone fundamentals are not very bad, “the problem is that we are challenged in our governance”; he emphasized the need to solidly anchor inflation expectations so that nominal medium and long term interest rates do not become destabilized

€ ECB’s Nowotny does “not see specific issues that could contribute to an increase in [Eurozone] inflation expectations”

€ German Chancellor Merkel again rejected euro bonds on Friday and said financial markets are trying to “blackmail” governments

€ Greece sent a formal letter to finance ministries around the world about the private sector debt exchange, and said that if 90% participation of private holders of Greek bonds is not achieved, the exchange would not go take place

CH Swiss bank UBS: "should we see a continuation of the net inflow of francs in cash clearing accounts of our banking customers, we might have to take corrective action, within the next few days, by means of a temporary excess balance fee"

$ US Q2 GDP growth was revised down more-than-expected to an annualized pace of 1.0% versus consensus at 1.1% and the advance figure of 1.3%, on the back of downward revisions to the change in inventories and net exports; personal consumption was revised up to +0.4% in Q2 from +0.1% reported originally, reflecting upward revisions to spending on nondurable goods and services; fixed investment was also revised higher (+8.7% vs. +5.9% originally) reflecting a faster pace within structures and equipment & software

$ US price measure of core personal consumption expenditures (ex-energy & food) was revised up to an annualized pace of 2.2% in Q2 from 2.1% reported initially and +1.6% in Q1; now matching a pace last seen in Q4’09

$ US UMich final August consumer confidence was revised up slightly as expected to 55.7 from the preliminary estimate of 54.9, which left the index at the weakest level since Nov’08 (the trough posted during the recession & global financial crisis); the measure of economic expectations was revised up by 1.7pts to 47.4 but was still the lowest since May 1980; in contrast the current conditions measure was revised lower to 68.7 from 69.3, still at the weakest since Aug’09 (66.6); long-term inflation expectations were steady at 2.9%, in line with the 3yr average

€ Eurozone M3 money supply rose 2.1%YoY in the 3 months to July versus +2.0% in June; private sector loan growth slowed to 2.4%YoY from 2.5% in June, back at the pace of Jan’11

£ UK Q2 GDP growth was confirmed at +0.2%QoQ, down from +0.5% in Q1; services output fell 0.1%MoM in June, in line with the consensus forecast, which left the quarterly estimate unrevised at +0.5% vs. +0.9% in Q1; the decline in industrial production was revised to -1.6% from -1.4% reported originally but this did not affect the headline; the expenditure breakdown of GDP was not yet available and will be released on October 5

¥ Japanese PM Kan confirmed on Friday that he was standing down as ruling party leader and would quit as prime minister once a successor was approved by parliament; FinMin Noda is expected to declare his candidacy for ruling party leadership

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