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Financial Markets: Headlines for October 21

October 21, 2011

EQ US equities lacked direction in a session dominated by headlines out of Europe and earnings, but the S&P 500 closed up 0.5% at 1215.39 on Thursday led by financials (+1.8%); US regional banks Fifth Third (FITB, +9.1%, $11.63) and KeyCorp (KEY, +6.9%, $6.81) posted better-than-expected earnings; after the European close, European leaders said they will meet on Sunday and make decisions by Wednesday latest; there are reports that a merger of the EFSF and ESM is under consideration as there appears to be no agreement on how to leverage the EFSF; most European bourses closed sharply lower amid concern that the summit might be canceled altogether; Stoxx 600 lost 1.5% to close near a 2-week low; financials were down 3.5%

FI Spanish and Italian bond yields rose further on Thursday amid the uncertainty about the EU leaders’ summit; 2yr yields were up 10 and 14bps respectively to 3.975% and 4.562%; Bunds and “core” Euro area debt posted moderate gains; the German 10yr yield declined 6bps to 1.995%; USTs closed lower after a choppy session and the curve steepened slightly as equities managed gains by the US close; the yield on the 10yr benchmark rose 3bps to 2.189%; the 2/10s widened 3bps to 192.6 and were up 2bps from a week ago

FX EUR/USD traded erratically but ended up 0.1% on the day at 1.378; EUR/CHF fell sharply to a 2-week intraday low of 1.228, paring losses slightly in the US session to 1.232 (-0.3%); Cable chopped around but had gained 0.1% to 1.579 after the US close

OIL The Dec’11 Brent crude contract gained 1.3% to $109.9bbl over a choppy session, supported late by assurance that the EU leaders’ summit will take place; former Libyan leader Gaddafi was killed on Thursday after being captured in Sirte; the WTI contract rose late in the US session to $86.48 but was little changed on the day

€ The EU leaders’ summit will now be held in 2 stages, beginning Sunday to be concluded by Wednesday; there appears to be no agreement on how to expand the capacity of the EFSF, although there are rumours that a merger of the EFSF and ESM is under consideration; the drawn-out summit will allow Chancellor Merkel to request approval from the German budgetary committee; the German and French leaders agreed on Thursday that the Eurozone needs a new operating method for the EFSF and a bank recapitalization plan, as well as common economic governance and more economic integration; on Greece they want negotiations with the private sector about Greek debt to begin immediately

€ EFSF operational guidelines were published in draft format; among the details, any bank recapitalization conducted by the EFSF as a last resort would entail a restructuring of the financial institution

€ Austrian FinMin Fekter said there is need for European bank recapitalisation of about €100bn

€ The Greek parliament voted to approve the latest austerity measures

€ Italian PM Berlusconi nominated Ignazio Visco to be the new governor of the Bank of Italy – Reuters

€ Spain sold €3.9bn in bonds, within the target range of €3.25-4.25bn; the €1.79bn in 10yr bonds sold at a yield of 5.433%, which was lower than 5.896% recorded at the previous similar auction on 21July, but the bid/cover ratio was weaker at 1.76 (1.90)

$ US Philly Fed index of general business activity in manufacturing jumped to +8.7 in October from -17.5 in September and surprised versus the consensus forecast of -9.4; the reading was the highest since April and above the 6-month average of -6.7; other key indices also signaled improvement, with the new orders balance at +7.8 vs. -11.3 previously and shipments at +13.6 vs. -22.8; the employment balance declined to +1.4 from +5.8

$ US initial jobless claims were lower at 403k in the week to October 15 versus an upwardly revised reading of 409k in the week prior (originally 404k); claims were below the month-ago level of 428k; the 4wk moving average at 403k was the lowest since mid-April

$ US existing home sales fell 3.0%MoM in September to an annualized pace of 4.91m but the August gain was revised up to +8.4% from +7.7% originally reported; the 3m average was steady versus Q2 (4.88m) and below the pace of sales seen over 2009 and 2010; the median house price fell to $165.4k in September, the lowest since April and down 3.5% from a year ago

$ US leading indicators rose 0.2%MoM in September, in line with the median forecast, versus an August gain of 0.3%; the 6-month annual change continued to moderate, to +3.7% in September versus +4.8% in August, the lowest since Oct’10; according to the Conference Board, the probability of a recession “starting in the next few months remains at about 50%”

€ EC Eurozone consumer confidence fell to -20 in the advance October estimate as expected, down from -19 in September and at the lowest level since Aug’09 (-22)

£ UK retail sales came in better-than-expected and rose 0.6%MoM in September versus the consensus forecast for a flat reading; the August decline was revised to -0.4% (originally -0.2%); ex-auto fuel, sales jumped 0.7% vs. -0.4% in August (originally -0.1%), as stronger sales were reported across household goods stores (+3.2%), other stores (+2.3%), non-specialised stores (+1.4%), and non-store retailing (+1.0%); on the quarter total sales volumes fell 0.2% vs. +0.3% in Q2


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