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Financial Markets: Headlines for November 2

November 2, 2011

EQ The rout in equities continued, with major US and European indices recording sharper losses at the start of November led by financials; concern was widespread about the forthcoming public referendum in Greece on the aid programme, and investors continued to judge the fallout from MF Global’s bankruptcy; both the US and UK manufacturing indices fell in October and came in weaker-than-expected; declines in European stocks were severe: Dax down 5%; Cac -5.4%; Italy -6.8%; Greece -6.9%; the decline in the FTSE (-2.2%) was moderate by comparison; the Dow lost 297pts to 11657.96 and the S&P shed 2.8% to 1218.28

FI US Treasuries rose sharply again as risk aversion intensified; the yield on the 10yr benchmark fell for a 3rd session, down 12bps to 1.989% and was back below 2% for the first time since 7Oct; the 30yr yield fell 13bps to 3.00%; Bunds outperformed among core Eurozone countries, with the cash yield down 26bps to 1.765%; Spanish debt stabilized, but Italian bond yields surged ever higher, with the 2yr (Aug’13) up 19bps to 5.199%; in CDS, iTraxx W. European sovereign index rose 33bps to 337 and was back above the 50dma of 333

FX The US dollar index rose intraday to the highest level since 12Oct and gained 1.1% over the session to 77.34; USD/JPY gained another 0.2% to 78.34 following the intervention-related surge on Monday; the euro pared losses toward the end of the US session but fell 1.2% versus the dollar to 1.370 and ended below the 50dma of 1.382

G20 The IMF may create a credit line with a 6-month term for countries facing liquidity shocks amid the Eurozone crisis – Bloomberg

$ US Senator Harkin (D, Iowa) and Representative Fazio (D, Oregon) will introduce measures in Congress for a financial transactions tax of about 3bps on financial firms

$ Bank of America (BAC, -6.3%, $6.40) reversed its plans to charge a monthly fee of $5 for debit card usage

€ Eurogroup Chairman Juncker said that Greek PM Papandreou has taken the decision about a Greek referendum on the EU/IMF aid programme without talking it through with European colleagues; although it is unclear when or what exactly the Greeks will vote on, “it is something that brings a great nervousness, that adds great insecurity”; the issue will be discussed on the sidelines of the G20 meetings

€ German Chancellor Merkel and French President Sarkozy agreed to meet Greek, IMF and European officials today in Cannes to discuss full implementation of the EU summit agreements – they want a timetable

€ European Council President Van Rompuy and Commission President Barroso noted the intention of the Greek authorities to hold a referendum on the EU summit agreement; “We fully trust that Greece will honour the commitments undertaken in relation to the euro area and the international community”

€ Greek members of the ruling PASOK socialists said PM Papandreou should resign and make way for “a politically legitimate” administration; at least one PASOK lawmaker quit the party

€ Fitch: “A rejection [in a Greek referendum] of the EU-IMF programme recently negotiated by the Greek government would increase the risk of a forced and disorderly sovereign default and – whilst not Fitch’s central rating case – potentially a Greek exit from the euro”

$ US ISM manufacturing index fell to 50.8 in October from 51.6 in September and disappointed versus the consensus forecast for an increase to 52.0; the prices paid index collapsed to 41.0 from 56.0 previously and was the lowest since Apr’09 (32.0), as prices declined for some metals, fuels and plastic resins; among key indices, the production balance fell to 50.1 from 51.2, but new orders jumped to 52.4 after 3 months in contraction territory; new export orders were steady; the employment balance fell 0.3pts to 53.5 and was below the 6m average of 55.1

$ US domestic vehicle sales rose in line with the consensus forecast to 10.29m (annualized) in October from 10.17m in September; this was the fastest pace since Aug’08

$ US construction spending rose 0.2%MoM in September versus a revised gain of 1.6% in August (originally +1.4%), but on the quarter spending was down 1.5% vs. a sharp gain of 4.9% in Q2

£ The UK manufacturing PMI dropped to 47.4 in October from a downwardly revised reading of 50.8 in September (originally 51.1), posting a sub-50 “contraction” reading for the 3rd month out of the past 4; the decline left the PMI at a level last seen in Jun’09; the new orders balance slumped to 44.1 from 50.3 previously and export orders continued to fall; production contracted at the fastest rate since May’09; employment declined for a 4th month; input and output price growth eased respectively to the slowest rates since Dec’09 and Aug’09

£ UK GDP rose 0.5%QoQ in Q3 and surprised to the upside of the median forecast (+0.3%), up from +0.1% in Q2; services output rose 0.7% vs. +0.2% previously; manufacturing output was up at a steady pace of 0.2% and construction output declined 0.6% vs. +1.1% previously; the ONS said the Q3 estimate was “complicated” by dampening factors in Q2 (the extra public holiday and the disaster in Japan), and suggested that GDP be viewed over the 6 month period (+0.6%); output was up just 0.5% compared to a year ago, the slowest pace yet in the current expansion

£ UK Nationwide house prices rose 0.4%MoM in October versus +0.1% in September; the annual pace rose to a 1-year high of +0.8% vs. -0.3% previously

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