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Financial Markets: Headlines for October 14

October 14, 2011

EQ Major US and European equity indices posted declines on Thursday as sentiment was dampened by concern about the capital needs of European banks and JPMorgan’s (JPM, -4.8%, $31.60) results, which showed Q3 revenue and adjusted earnings at levels lower than a year ago; Euro Stoxx 600 fell 1.1%, led by drops in financials (-3.1%) and basic materials (-2.0%); the S&P 500 pared losses in the latter half of the session, closing down just 0.3% at 1203.66; Google (GOOG, +1.9%, $558.99) reported after the close and beat expectations on revenue and profit

FI USTs ended a string of losses and posted modest gains over the session as equities pulled back and the 30yr auction saw strong demand; the yield on the 10yr fell 3bps to 2.184%; the curve was flatter, with the 30yr yield down 4bps to 3.157%; the Dec’11 Bund future rose 83 ticks to 134.39; peripheral debt suffered and yields on 2yr Italian and Spanish debt rose sharply, up 14 and 15bps respectively to 4.268% and 3.477%

FX The euro fell slightly versus the dollar, down 0.1% to 1.378 but was still up 2.6% from a week earlier; the dollar was mixed versus major currencies and pulled back versus the yen to 76.87 from the 1-month high of 77.50 reached on Wednesday; the Dec’11 gold future fell 0.5% to $1668.5oz; the contract had posted muted gains of 1% over the week but remained down sharply versus month ago levels above $1800

$ Fed’s Kocherlakota (voter) said recent moves to ease monetary policy diminish the Fed’s credibility and are inconsistent with developments in employment and inflation; “operation twist” is about equivalent to a fed fund rate cut of 50bps but is not a “game changer”

$ The US sold $13bn in 30yr bonds at a record low yield of 3.12%, down from 3.31% at the previous auction on September 14; the bid/cover ratio was the strongest since March, up at 2.94 vs. 2.85 previously

€ Italy sold €6.19bn in bonds on Thursday, at the high end of the €1.5-6.5bn target range; in the 5yr BTP auction Italy sold the maximum amount of €3.5bn, at a yield of 5.32%, down from 5.60% at a similar auction on Sept. 13; bid/cover ratio slightly stronger at 1.34 vs. 1.28 previously

€ EFSF: Slovakia’s parliament approved the expansion of the EFSF powers; EFSF head Regling said the new mechanisms can now become operational; the EFSF will keep its AAA rating and he is confident that the EU leaders at the Oct. 23 meeting will “have enough substance to respond to what the market needs”

€ Statement from EU President Van Rompuy and EC President Barroso: "The EFSF provides us with a stronger, more flexible tool to defend the financial stability of the euro area. This is in the clear interest of every one of the 17 Member States directly concerned, as well as for the wider European Union”

€ The ECB warned in its October Monthly Bulletin about the negative consequences of private sector involvement (PSI) in sovereign debt restructuring; the negative impacts of PSI are likely to be more extensive in a monetary union

€ EU officials reportedly said that banks who need to strengthen their balance sheets could have 6 months to do so – Reuters

€ Irish PM Kenny said that the issue of private sector involvement (PSI) in reducing sovereign debt should relate only to Greece

€ Austrian FinMin Fekter: "To save the Italians as well, that just cannot be. They have to see to it that they bring about a turnaround themselves”

€ ECB’s Liikanen: risks of inflation are balanced; ECB has no pre-commitment; ECB’s Makuch: a decline in Eurozone GDP “can’t be ruled out if downside risks materialize”

$ US initial jobless claims stabilized but remained elevated above 400k; new claims came in at 404k in the week through October 8, little changed from an upwardly revised 405k in the week before (originally 401k); the 4wk moving average fell to a 2-month low of 408k; continuing claims showed a drop of 55k to 3.670m in the week to October 1 and were the lowest since mid-April

$ The US trade deficit stabilized at $45.6bn in August, as the July deficit was revised slightly higher from $44.8bn reported originally; exports fell 0.1%MoM and imports were steady for a second month in August; the price-adjusted trade balance was slightly higher in August at $47.0bn, but the 2-month average of $46.5bn was below Q2’s $47.3bn, signaling another positive contribution to GDP from net trade in Q3; real import growth slowed further on a 6m/ 6m basis, highlighting weakening domestic demand

€ The German CPI was confirmed at 2.6%YoY in September, up from 2.4% in August and at the highest level since Sep’08; the EU-harmonized measure was revised up to 2.9% from 2.8% reported originally, also the highest since Sep’08 (3.0%)

£ The UK visible trade deficit shrank to a 4-month low of £7.8bn in August from a revised £8.2bn in July (originally £8.9bn); exports rose 0.6%MoM to a record high and imports declined 0.7%

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