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Financial Markets: Headlines for September 23

September 23, 2011

EQ A global rout in risk markets followed the Fed’s decision to alter securities holdings on the balance sheet, actions which failed to boost sentiment in a climate dominated by the Eurozone crisis and fears of renewed recession, with seemingly limited scope for coordinated policy response; recession concerns were exacerbated on Thursday by another decline in Chinese and European PMIs and an upward trend seen in US jobless claims; the S&P 500 fell 3.2% to 1129.56 with 95% of shares closing lower led by basic materials (-6.2%) and oil & gas (-5.3%); Euro Stoxx 600 lost 4.6% and fell further into bear market territory (-26.2%), now at the lowest level since 20Jul’09; emerging market shares plunged as well, with the MSCI EM down 6.6% in the sharpest drop since Nov’08

FI USTs stabilized at the 2- and 3-year maturities during the flight to safety, despite the bearish implications of the Fed’s new policy to extend the duration of its holdings; the curve flattened further as the 30yr yield plunged 20bps to 2.797% – although the yield remained above lows posted in late 2008 – while the 10yr yield sank 14bps to 1.719%; in Europe the ECB was reportedly in the market buying Italian and Spanish debt which helped stabilize peripheral government bonds; the German 10yr cash yield fell 10bps to a new crisis closing low of 1.671%, but both German and French 5yr CDS reached record highs along with Italy and Spain

FX The dollar rallied against all major currencies except the yen as risk aversion intensified, putting pressure on commodity prices and gold; USD/ZAR was up 6.9% in trading since the Fed decision; the euro fell another 0.7% versus the dollar on Thursday to 1.347, and touched the lowest level since January; Cable fell throughout the sessions and lost 0.9% to 1.536; USD/JPY traded choppily and finished the US session at 76.28, down 0.5% over the past 24 hours and close to record lows

OIL WTI Nov’11 crude briefly fell below $80bbl, losing 5.2% over Thursday’s session to $80.4bbl and down 10.1% from a week ago

$ US Tsy Sec. Geithner said European officials will “act with more force in the coming weeks and months” and he expects that they will expand “the effective financial capacity” of their “financial ring fences”

$ The US will auction $35bn in 2yr, $35bn in 5yr, and $29bn in 7yr notes next week beginning Tuesday – amounts unchanged from the August auctions

$ US initial jobless claims fell 9k to 423k in the week to September 17 but claims were above the consensus forecast of 420k and the previous week’s figure was upwardly revised to 432k (originally 428k); in a negative signal for September payrolls growth, both initial claims and the 4wk moving average (421k: highest since mid-July) were above the levels of a month ago during the last survey week for the nonfarm payrolls report

$ US index of leading indicators rose 0.3%MoM in August versus a revised gain of 0.6% in July (originally +0.5%); the 6m annual change slowed further to 4.8% in July, down from 5.2% in Q2 and 8.2% in Q1

$ US FHFA house price index rose for a 4th consecutive month in July, up 0.8%MoM versus +0.7% in June

EM The BRIC countries issued a communiqué after meeting in Washington and said they are open to providing more support through the IMF to address the crisis in the global financial system; the current situation requires decisive action – no direct references to buying European debt

€ The FT reported that European governments are planning to speed up action on recapitalisation of 16 banks that came close to failing the EU stress tests, but the European Banking Authority denied this claim and said there is no acceleration of the agreed timetable

€ EU Economic Commissioner Rehn said “it is very important for officials to look at the possibility of leveraging the EFSF resources and funding to have a stronger impact and make it more effective”; Eurozone members must go further in pooling their sovereignty; strengthening the monetary union could make the idea of common bonds more realistic; he said officials will not allow “an uncontrolled default or exit of Greece” to happen

€ ECB’s Liikanen: "There is a big risk that the European debt crisis contagion cannot be dammed from spreading to a global crisis. Concrete actions are now necessary. It is very important to implement the July 21 decisions and that the European Financial Stability Facility, EFSF, becomes fully operational"

€ ECB study co-authored by outgoing Exec. Board member Juergen Stark: "Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of EMU itself"

€ The Eurozone advance September PMIs disappointed versus consensus forecasts and the composite measure came in below 50 for the first time since Jul’09, at 49.2 vs. 50.7 in August; PMIs fell and were weaker-than-expected across manufacturing & services in both Germany and France; the German manufacturing measure fell to 50.0 from 50.9 previously and was the weakest since Sep’09

€ Eurozone EC preliminary September consumer confidence fell further to -18.9 from -16.5 in August; the result was below the consensus forecast of -18.0 and the weakest since Sep’09

£ UK BoE MPC member Posen said fears about inflation in the UK are “exaggerated”: "If there’s no wage growth – and there isn’t – and the pound has been stable and the futures markets tell us that energy prices, oil prices, are going to be flatter down the line, then today’s high inflation doesn’t have any forecasting worth for what we should do for next year"

£ UK CBI industrial trends: the total orders balance dropped to -9 in the September survey versus +1 in August; the 6-month moving average ended its upward climb and posted the first decline since Jul’09

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