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Financial Markets: Headlines for October 18

October 18, 2011

EQ Equities slumped in US and European markets on Monday after last week’s sharp gains; financials underperformed as comments from German officials dampened optimism about crisis resolution, while earnings reports from Citigroup (C, -1.7%, $27.93) and Wells Fargo (WFC, -8.4%, $24.42) proved disappointing; the German FinMin and a government spokesman said that the upcoming summit on Sunday will not provide a definitive solution to the crisis; the NY Empire manufacturing index weighed on sentiment as well and disappointed versus consensus in October; the Dow lost 247pts to 11397.0 as all constituent stocks posted declines; Euro Stoxx 50 fell 1.7% to a 4-session low of 2315.89

FI USTs rose sharply at the long-end and the curve flattened; the 30yr yield fell 10bps to 3.130% while the 2yr held at 0.266%; the German Bund yield fell 10bps as well to 2.095%; France underperformed and the French-German 10yr yield spread widened to a new euro-era high of 95.6bps, up from 78.5bps a week ago; Eurozone peripheral government bonds were under broad pressure– Spanish 2yr yield rose 9bps to 3.633%; Italy up 4bps to 4.292%

FX EUR/USD fell sharply during the European session and continued its decline to end at the day’s lows, down 1% to 1.373; the dollar was up broadly while commodity currencies underperformed; AUD/USD fell 1.3% from Friday to 1.017 and continued to hover around the 50dma (1.02); Cable lost 0.5% to 1.574

OIL Commodity prices fell broadly as risk taking faded; the Nov’11 WTI crude contract declined 1.1% to $86.5bbl, remaining marginally above the 50dma of $85.4bbl; the Dec’11 Brent contract declined 2% to $110bbl

€ Moody’s issued an annual credit report on France after the US market close: the outlook for the AAA rating is stable, but the agency will assess this outlook over the next 3 months because of “deterioration in debt metrics and the potential for further contingent liabilities to emerge”

€ German FinMin Schaeuble said the upcoming EU summit will not present a final solution for the debt crisis, but he later said he does expect decisions on bank capital and how to use the EFSF in a flexible way; leaders will likely agree on a 9% core-tier 1 capital requirement for European banks

€ German government spokesperson Seibert said that dreams that the whole Eurozone crisis can be solved by Monday will not be fulfilled; there are no concrete plans for Chancellor Merkel to meet with top bankers

€ Austrian National Bank Vice Governor Duchatczek said that to his knowledge, there was no agreement yet on the details of an EU bank recapitalization plan

€ ECB’s Stark said there is no “silver bullet” to resolve the Eurozone crisis including issuing euro bonds; he said the EU needs “genuine economic union” and a “strengthening of incentives for prudent and sustainable fiscal policies”

€ ECB’s Noyer: “it will be up to them (the French banks) to find out whether they have to or are willing to raise more capital in the market and certainly sovereign wealth funds could in some cases be an opportunity"

€ The ECB bought €2.243bn in bonds last week through the Securities Markets Programme, down from €2.312bn in the previous week; total settled purchases now stand at €165.2bn

$ US industrial production rose 0.2%MoM in September as expected and mixed revisions to August and July production largely balanced each other out; this left the quarterly gain at +1.3% vs. -0.1% in Q2; manufacturing output was up broadly in September by 0.4% vs. +0.3% in August; utilities output weighed for a 2nd month (-1.8% vs. -2.9%); mining output rose steadily at +0.8%

$ US NY Empire manufacturing index of general business conditions rose marginally to -8.5 in October from -8.8 in September, but the result disappointed versus consensus at -4.0 and left the 3m average at the weakest level since Jun’09; other key indices in the survey showed more improvement and were at 5-month highs; the new orders balance rose to +0.2 from -8.0 previously; the shipments index jumped to +5.3 from -12.9; the employment balance rose to +3.4 from -5.4 previously

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