Skip to content

Financial Markets: Headlines for October 4

October 4, 2011

€ Eurogroup head Juncker spoke late after the Eurozone finance ministers’ meeting and said that technical revisions to the July 21 agreement on private sector participation in the Greek bailout are under discussion; the troika report on Greece will probably not be ready for October 13, signaling that the Greek aid payment will be delayed; everything will be done to avoid a Greek default; the efficiency of the EFSF needs to be increased but involving the ECB is not the main avenue under consideration

€ The Eurogroup announced a collateral deal related to the Greek bailout in which members who want collateral would receive lower profits from the EFSF and have to speed payments into the permanent ESM rescue fund; EFSF head Regling said Finland is likely to be the only government who asks for collateral

EQ The S&P 500 fell 2.9% to 1099.23 in a broad-based sell off at the start of the quarter led by financials (-4.4%); the decline left the index at the lowest level in over a year and just marginally outside of bear-market territory, down 19.4% from the cycle high reached April 29; investors shrugged off some better-than-expected economic reports, and there was no signal that a major decision would come out of this week’s EU finance ministers’ meetings; over the weekend, German FinMin Schaeuble said Germany would not contribute more funds to a further expansion of the EFSF, while Greece said it would not meet budget targets, keeping investors on edge about payment of the next aid tranche; Euro Stoxx 50 unwound some of last week’s quarter-end gains and lost 1.9% to close at 2138.24, down 23.4% YTD

FI US Treasuries rose further after the Fed completed its first “operation twist” purchase in the Feb’36 to Aug’41 maturity range; the curve flattened as the 30yr yield dropped 19bps to a new 2011 low of 2.725%; the 2/10s narrowed back to 152bps vs. 167bps a week ago; the benchmark German bund future jumped 95 ticks to 137.44; yields fell slightly on 10yr Italian, Spanish and Greek debt amid reports of ECB purchases; the Italian 10yr yield declined 2bps to 5.504%; gilts outperformed and the 10yr reversed the losses of the last week; the yield dropped 8bps to 2.344%

FX The dollar and yen rose against other major currencies on Monday and the euro fell sharply as the finance ministers’ meetings got underway; EUR/JPY struck a new 10-year low, down 2% to 100.87; EUR/USD dropped 1.4% to 1.319 remaining at the lowest levels since mid-January; a stronger dollar put pressure on most commodity prices but he Dec’11 gold contract rose 2% to $1658.5oz, trading within last week’s range

OIL Crude prices fell for a second session and the Nov’11 WTI contract lost 2.6% from Friday to $76.61bbl, touching the lowest level of the year; Brent fell 1.3% to $100.9bbl, down 2.9% from a week ago

$ The Fed kicked off Operation Twist and bought $2.5bn in Treasuries in the Feb’36 to Aug’41 maturity range; dealers submitted $7.47bn

$ Fed’s Fisher (voter; dissenter): fiscal policymakers should help stimulate the economy and offer greater clarity on policy especially related to the long term; without proper fiscal policies the Fed’s actions are “pushing on a string”; there is “minor momentum” in the economy; sees growth under 2% for the rest of 2011; inflation trending toward 2%

€ Belgian FinMin Reynders: "the French and Belgian governments are behind their banks”

€ EU Economic Commissioner Rehn said the 3 main challenges facing finance ministers are “stalling growth, stressed sovereigns and still vulnerable banks"

€ The ECB completed €3.795bn in bond purchases under the Securities Markets Programme last week – similar purchase size to the previous week (€3.952bn)

€ ECB’s Nowotny hinted that the ECB could announce long-term liquidity operations: “It is a problem that long-term liquidity for banks is very difficult to achieve on the markets”; “the ECB has shown that there is ample room for additional liquidity for the banks because the banks still have enough they can give to the central banks as security”

€ The IMF’s Fiscal Affairs director said Greece needs further fiscal adjustment and deficit reduction this year and next; discussion is underway about how to complete the adjustment – Reuters

$ US ISM manufacturing index rose to 51.6 in September from 50.6 in August and surprised versus consensus at 50.6; the September increase mirrored the direction of the Philly, Richmond, and Chicago PMIs and signaled an ongoing pace of modest economic expansion; the production balance rose to 51.2 from 48.6 previously but remained on a downward 3-month trend; measures of demand signaled further slowing ahead; the new orders balance stabilized at 49.6, the weakest since Jun’09 and the order backlogs contracted at the fastest pace since Apr’09

$ US domestic vehicle sales jumped 6.8%MoM in September to a 5-month high of 10.17m annualized

$ US construction spending rose 1.4%MoM in August versus consensus at -0.2% and a revised decline of 1.4% in July (originally -1.3%); the 3m annualized pace remained in double-digit growth territory at 12.4% in August versus 10.2% in Q2

€ Eurozone manufacturing PMI was revised up by 0.1pt in the final September estimate to 48.5 but was down from 49.0 in August and at the lowest level since Aug’09; only the German PMI held above 50, at 50.3 in September versus 50.9 in August; new orders fell at the fastest pace in 27 months and were down across countries; new export orders also fell across all countries; growth in input and output costs slowed; output price inflation was the weakest since Apr’10

£ UK manufacturing PMI rose to 51.1 in September from an upwardly revised 49.4 in August (originally 49.0) and came in above the consensus forecast of 48.5; both output and new orders posted slight growth in September and the balances were at 5-month highs; however, backlogs contracted at the fastest pace since Sep’09 and new export orders shrank at the quickest pace since May’09; overall the PMI averaged 50.0 in Q3, the most sluggish result in 2 years

£ UK BoE Financial Policy Committee judged that it was “inappropriate in the current circumstances for banks to reduce capital or liquidity ratios,” but “for some members…it would be natural in current stressed funding market conditions for banks’ liquidity buffers to fall, and this could occur without dangers to market confidence provided that capital ratios were maintained at high levels”


No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: