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Financial Markets: Headlines for November 1

November 1, 2011

EQ Major stock indices fell sharply on Monday which cut into strong gains made over the month; investors took profits at month-end amid concern about the financial system and resolution of the sovereign debt crisis, as MF Global filed for Chapter 11 and highlighted the risks from banks’ exposure to Eurozone government bonds; the decline in the S&P 500 accelerated into the close as Greek PM Papandreou said there will be a national referendum on the new aid package for Greece; the S&P lost 2.5% to 1253.30, which reduced the October gain to 10.8%; Euro Stoxx 50 fell 3.1% on Monday to 2385.22 and the monthly gain narrowed to 9.4%, still the best since Jul’09

FI Investors flooded into government bond markets viewed as safe havens and wider 3m Euribor and Libor-OIS spreads indicated tighter conditions in bank funding markets; USTs surged and the yield on the 10yr benchmark dropped 20bps to 2.113%, ending near the month’s average of 2.128%; the UK 10yr gilt yield declined 17bps to 2.434%; the Dec’11 German bund future rallied 293 ticks to 136.60; Italian and Spanish debt remained under pressure amid skepticism that the Eurozone leaders’ plan would be enough to backstop Italy and Spain or help to spur growth; yields rose across the curves and the Italian 2yr jumped 29bps to a new euro-era high of 4.919%; the Spanish 2yr yield was up 7bps at 3.887%

FX Japan intervened in the fx market to curb appreciation of the yen which initially sent USD/JPY up more than 5% to 79.54; the pair ended the US session up 3.2% from Friday at 78.17, the highest since early August; EUR/JPY cut gains to 0.9% (108.27); the euro was under broad pressure versus other major currencies as liquidity and safe-haven bids supported the US dollar and sterling; EUR/USD lost 2.2% to 1.385 but was still up 3% on the month; EUR/GBP fell 2.0% to 0.861 which cut the monthly gain to 0.2%

$ MF Global Holdings Ltd. and its finance unit MF Global Finance USA filed for Chapter 11 bankruptcy protection on Monday after they were unsuccessful in finding a buyer after weekend talk

$ The NY Fed is left to deal with 21 primary dealers after it suspended conduct of new business with MF Global Inc.

¥ Japan intervened in the fx market on Monday to weaken the yen; BoJ Governor Shirakawa said that “the BOJ strongly hopes that such moves will lead to currency market stability”

$ The US Treasury said that net issuance of marketable debt in Q3 was $286bn, which was $45bn lower than the estimate made in July; however, Treasury expects to issue $305bn in net marketable debt in Q4, which is $21bn higher than announced previously, on account of “lower receipts, higher outlays, and changes in the cash balance assumptions partially offset by higher net issuances of State and Local Government Series securities”; in Q1 2012 the Treasury plans net issuance of $541bn which would be the highest since Q4’08

$ US Chicago PMI fell to 58.4 in October from 60.4 in September and disappointed versus the consensus forecast of 59.0; the 6-month moving average continued to ease, at 58.6 in October versus 66.0 in H1; the new orders and production balances fell slightly in October although they remained above their respective 6-month averages; the employment balance rose to 62.3 from 60.6 previously

€ Greek PM Papandreou said there will be a national referendum on the new EU aid package for Greece and a vote of confidence on his leadership

€ EFSF head Regling: "The Japanese government will continue to buy the EFSF bonds that we have been issuing over the last 10 months and we will continue to be in contact about future operations”; there is reportedly no commitment from Japan to contribute to any SPIV

€ German FinMin Schaeuble believes the crisis will drive Eurozone nations to take the next big steps toward “fiscal union”; involvement in each other’s budgetary affairs is “the way we have to go”

€ Eurozone “flash” October CPI held at 3.0%YoY, above the consensus forecast of 2.9%, remaining at the highest levels since Oct’08

€ The Italian, EU-harmonized CPI jumped to 3.8%YoY in the preliminary October estimate from 3.6% in September and was the highest since Sep’08

€ Eurozone unemployment rate rose to 10.2% in September from an upwardly revised 10.1% in August and was the highest since Jun’10; although not all national results were available, the Italian unemployment rate jumped to 8.3% from 8.0% and Spanish rose to 22.6% from 22.2% previously

€ German retail sales rose 0.4%MoM in September and disappointed versus consensus at +1.0%; the August decline was revised to -2.7% from -2.9% reported originally

£ UK PM Cameron said that the G20 must “show single-mindedness on three fronts: confronting our debts; strengthening the competitiveness of our economy; and unlocking global trade”; the Chancellor will soon provide more details on a UK programme of credit easing; UK infrastructure improvement is also in focus

£ UK mortgage approvals fell for the first time since April, down at 51.0k in September versus 52.3k in August but remained above the 6-month moving average of 49.0k and the year ago level of 47.0k

£ UK net lending secured on dwellings rose at a slower pace of £0.3bn in September versus a revised £0.5bn in August (originally £0.5bn), below the 12m average of £0.6bn; net consumer credit remained on a gently upward trend and rose at a stronger pace of £0.6bn vs. £0.5bn previously

£ UK M4 money supply fell 1.7%YoY in September vs. a revised decline of 0.8% in August (originally -0.6%); M4 lending excluding intermediate OFCs contracted at a faster 3m annualized pace of 5.7% in September vs. -4.8% in August

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