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Financial Markets: Headlines for October 31

October 31, 2011

EQ The Dow rose 0.2% on Friday to 12231.11 as the rally in equities slowed at the end of the month; the index gained 3.6% on the week which marked a 5th consecutive increase; the S&P traded in a narrow range and gained 0.04% on Friday to 1282.09, remaining at the highest level since 1Aug; most bourses in the Eurozone closed weaker and the Stoxx 600 lost 0.2%, which cut the weekly gain to 4.2%; the index was up 16% from the 2011 low posted on 22Sep

FI US Treasuries rose and the yield on the 10yr fell 8bps to 2.318%; the 2/10s steepened 7.6bps over the week to 202.7; Bunds rose modestly and the 10yr cash yield fell 3bps to 2.174%; “programme country” bonds were broadly stronger over the session but Italy’s bond auctions produced euro-era record high yields and Italian and Spanish debt came under pressure; Italy’s 2yr (Aug’13) yield climbed 30bps to 4.690% and was the highest since 4Aug before the ECB started buying Italian bonds; the Spanish 2yr (Oct’13) rose 26bps to 3.873%, but was down 7bps from a week ago

FX The euro held onto most of Thursday’s gains versus the dollar and lost just 0.2% on Friday to 1.416; the pair was up more than 2% on the week and still at the highest levels since early-Sep; the US dollar index stabilized on Friday and was down 1.7% from a week ago at 75.09; Gold held onto most of Thursday’s gains, with the Dec’11 contract up 6.3% from a week ago at $1744.5oz

€ Italy sold bonds on Friday but average yields rose to euro-era record highs; the €3.08bn sale of 3yr bonds was at 4.93%, up from 4.68% previously; the 10yr bonds sold at 6.06%, also a euro-era high, up from 5.86% previously and the bid/cover was lower at 1.27 vs. 1.37 in September

€ ECB President Trichet said that the crisis is not yet over and it is “absolutely decisive now” that the EU leaders’ decisions are implemented quickly and completely; he thinks that Mario Draghi’s comments last week about the ECB’s determination to use non-conventional measures have been over-interpreted; he expects inflation to be very low over the next 10 years

€ The European Investment Bank (EIB) said it “will not provide any kind of financial support to any recapitalisation or guarantee scheme” but will provide “technical expertise to the discussions with the European Commission, EBA and ECB on developing term-funding solutions for the banking sector”

€ German Chancellor Merkel: "In Europe it must be prevented that others come seeking a haircut"; she said it will take years to overcome the sovereign debt crisis

€ The ECB settled €4.0bn in bond purchases last week through the Securities Markets Programme versus €4.49bn in the previous week, which brought the total amount of settled purchases to €173.5bn

$ Christina Romer, former head of the President’s Council of Economic Advisors, urged Fed Chairman Bernanke to change the Fed’s framework in order to target nominal GDP growth

$ US personal income rose 0.1%MoM in September versus -0.1% in August; real disposable personal income (post-tax) fell 0.1%, down for a 3rd consecutive month; real consumer spending jumped 0.5% and the 3-month annualized pace was confirmed at +2.4% vs. +0.7% in Q2; the saving rate on the month was 3.6%, the lowest since Dec’07

$ US UMich October consumer confidence was revised up to 60.9 in October from the preliminary estimate of 57.5 and posted an increase from 59.4 in September; both the expectations and current conditions measures were revised up to stronger levels than in the previous month; inflation expectations were unrevised, with the 5yr measure at 2.7% vs. 2.9% in September, back at a level last seen in Sep’10

£ UK GfK consumer confidence fell to -32 in October from -30 in September and was the most depressed since Feb’09 (-35)

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