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Financial Markets: Headlines for September 15

September 15, 2011

EQ US stocks shrugged off disappointing US retail sales and business inventory reports as sentiment was supported by hope that China could lend support to Greece, while France and Germany expressed solidarity toward the Eurozone, and EU’s Barosso said the Commission will present options on euro bonds; the S&P rose for a 3rd consecutive session and peeked briefly above the 1200 mark, ending the day up 1.4% at 1188.68; stocks rose broadly across European bourses for a second day and the Stoxx 600 gained 1.5%, now up 2.4% from Monday’s 2011 low

FI USTs outperformed at the very long end and the yield curve flattened after a well-bid 30yr bond auction, amid expectations that the Fed will act to extend the average maturity of its Treasury portfolio while investors remain short on risk as the Eurozone crisis intensifies; the yield on the US 30yr fell 5bps to 3.276% and was down 9bps from a week ago; PIIGS government debt saw a reprieve on Wednesday and bonds rose at the 2yr maturity; the Italian 2yr declined 13bps to 4.413%

FX The euro gained 0.5% against the dollar to 1.375 and added 0.6% versus sterling to 0.872; the dollar fell further against the yen, losing 0.3% to an 8-session low of 76.65 although it posted gains against most other major currencies as investors remain broadly risk averse and focused on liquidity

$ The US sold $13bn in 30yr bonds at a record low yield of 3.310%, down 44bps from the yield at the previous 30yr auction on Aug. 11th; the bid/cover ratio was the strongest since March, at 2.85 vs. 2.08 previously; indirect bidders took 39.4%, the largest share since April

$ US Treasury Secretary Geithner expressed support for the Obama jobs plan and said “the stuff you have to do to make long term fiscal deficits more healthy requires spending money now”; he said Eurozone leaders are committed and have the financial and economic capacity to hold the zone together; they are working to figure out the architecture for a more complete fiscal union

€ Two banks accessed $575m in 1-week USD funding through the ECB’s weekly tender at 1.1%; this was the second time the facility has been used in the past month; on August 17th a bank borrowed $500m at 1.1%

€ Spanish banks borrowings from the ECB jumped to €81.6bn in August, up from €57bn in July

€ Moody’s cut the credit ratings of French banks Societe Generale and Credit Agricole

€ German Chancellor Merkel and French President Sarkozy said they are convinced that Greece’s future is in the Eurozone; Greek PM Papandreou has agreed to implement all reforms to meet fiscal goals

€ EU finance ministers have prepared documents for the Sep. 16/17 meetings that acknowledge the systemic crisis and contagion across markets that is impacting bank funding and economic growth; a credit crunch could ensue; the EU should stand ready to take measures to restore confidence; banks’ capital levels should be monitored and it is advisable that bank resources be reinforced – Reuters

€ Bank of France Governor Noyer said French banks do not need any outside capital; “even if there was a shocking scenario, as the market expects at times, it would represent less than six months of profits. That would mean a smaller dividend, but no losses"

€ The Greek Deputy FinMin said China and Russia have actively been invited to participate in T-bill sales but there has been little or no participation

€ European Commission President Barroso said the EC will soon present options on how the Eurozone could issue joint bonds

€ Bank of Portugal Governor Costa said the EU is based on the principle of no exit and no defaults; it is unthinkable for Greece to leave under the current treaty; more integration is required and Europe should consider euro bonds

€ Italy’s Chamber of Deputies signaled approval for the government’s austerity plan through a confidence vote on Wednesday

$ US advance retail sales were flat in August and disappointed versus consensus of +0.2%, while the July gain was revised down to +0.3% from +0.5% reported originally; sales performance was mixed across categories; motor vehicle sales fell 0.3% in August; clothing sales fell -0.7%, down for a second consecutive month; miscellaneous sales dropped 2.2%; gains at other stores were subdued, apart from sporting goods which jumped 2.4%; the measure of sales excluding autos, gas and building materials was flat, leaving the 3m annualized pace at 3.3%, the weakest since Aug’10

$ US producer prices were flat in August as expected and would have declined excluding a +1.1% jump in food prices; ex-food & energy, wholesale price growth moderated to +0.1%MoM from +0.4% in July; prices were subdued at earlier stages of processing as well; intermediate goods prices fell 0.5% led by falling energy prices; crude prices rose 0.2% after declining in the previous 3 months

$ US business inventories rose at a steady pace of 0.4%MoM in July and retailers’ inventories were flat; the 3-month annual change in business inventories was the smallest in a year, highlighting a slower build-up amid uncertainty about the outlook for demand; sales were up 0.7%MoM versus +0.5% in June

€ Eurozone industrial production rose 1.0%MoM in July vs. -0.8% in June but the result disappointed versus the median forecast of +1.5%; the 3-month change slowed to +0.2% from +0.3% in June and +0.9% in March; the more forward-looking Eurozone manufacturing PMI has been declining since May and posted a contraction reading of 49.0 in August

£ UK claimants for jobless benefits rose 20.3k in August versus a revised increase of 33.7k in July (originally 37.1k); although this was the sixth consecutive increase, the result was below the consensus forecast of 35.0k; the claimant count rate held at a 2011 high of 4.9%

£ UK average weekly earnings growth excluding bonuses slowed to a 3m annual pace of 2.1% in July versus a revised pace of +2.3% in June (originally +2.2%); real earnings growth remained well below the pace of consumer prices in July (3m average of 4.4%YoY), highlighting a steep contraction in real earnings; the UK ILO unemployment rate held steady at 7.9% in the 3 months through July; the number of unemployed rose 80k over the 3 months, the largest quarterly increase in 2 years; employment fell 70k as public sector payrolls were reduced by a record quarterly amount of 111k

CNY Chinese Premier Wen believes the US “will achieve economic recovery. However, we hope the US will implement sound economic policies and ensure fiscal and financial stability to protect investors’ interest and maintain confidence"; urged Europe to stem the spread of the crisis

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