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Financial Markets: Headlines for November 3

November 3, 2011

€ A Greek referendum on the EU/IMF bailout is shaping up to be a vote on whether the country wants to stay in the Eurozone or exit; the referendum is planned for December 4-5 and an emergency Eurogroup meeting has been scheduled for this Monday to accelerate firewall options; PM Papandreou said Greece “needs a wider consensus”; President Sarkozy said the EU is ready to aid Greece and Chancellor Merkel said she would prefer that Greece stayed in, but Greece must adopt the Eurozone leaders’ plan from 27Oct in entirety to get its 6th aid tranche, the payment of which will now be withheld until after the referendum; Chancellor Merkel said euro stability must be placed above Greece

EQ US and European stock markets rose on Wednesday and halted the sharp declines of recent days although there was no breakthrough on the Greek referendum issue during the sessions; the S&P 500 advanced at the open and gained 1.6% on the day to 1237.90, remaining up on the session through the FOMC announcement and press conference with Chairman Bernanke; Euro Stoxx 50 rose 1.4% after Tuesday’s drop of 5.3%; the German Dax rose 2.3% but bourses of Greece (-0.9%), Portugal (-0.2%) and Spain (-0.1%) posted further declines

FI US Treasuries stabilized on Wednesday and the yield on the 10yr benchmark was flat at 1.985% by the end of the US session; Bunds declined moderately after the massive rally in the previous 2 sessions; the German 10yr cash yield rose 6bps to 1.824% and the Dec’11 Bund future fell 58 ticks to 137.57; Italian yields climbed slightly further; the yield on the 2yr (Aug’13) rose 1bp to 5.21%; Greek yields skyrocketed amid the loss of confidence in the next bailout; the 2yr yield surged above 80%

FX The euro stabilized versus the dollar and gained 0.3% to 1.375 by Wednesday’s US close, but headed lower after the news about the Greek referendum on Eurozone membership; USD/JPY fell 0.4% to 78.08 on Wednesday and in the wake of Japan’s fx intervention the pair was up 2.7% from a week ago

$ The FOMC lowered projections for growth through 2013 and raised unemployment projections; the Committee made no policy changes but Chairman Bernanke confirmed willingness to ease further, although he did not indicate a timeline or particular triggers;  according to the Chairman the main policy tools available at this stage are more asset purchases and enhanced communication.

$ US ADP private sector payrolls rose 110k in October, above consensus at 100k, and the September gain was revised up to 116k (originally 91k); the 3-month average stabilized around 104k, down from 119k in Q2; on the month, hiring at medium-sized firms was slightly quicker at 53k vs. 48k in September; small firms added 58k vs. 64k previously; large firms shed 1k in October vs. +4k previously, marking the first decline since May (-21k)

$ US Challenger job cuts rose 12.6% from a year ago in October, moderating versus the September jump of 211.5%YoY; job cuts have been above year ago levels for five consecutive months

€ Eurogroup Chairman Juncker: "A week ago, 17 of us took decisions together. We will not accept that somebody backs away from those decisions”

€ IIF Chief Dallara said he is confident of getting “strong participation” in the Greek bond offer entailing 50% losses

€ The EFSF delayed a €3bn bond offering related to Irish aid on account of market conditions

€ The Eurozone October manufacturing PMI was revised down to 47.1 from the preliminary estimate of 47.3 and posted a 6th consecutive decline on the month; both output and new orders contracted at faster paces in October, with the balances at 46.6 and 43.4 respectively; new orders were the weakest since May’09; PMIs from Germany (49.1) and France (48.5) were revised up slightly but remained in contraction territory; Italy and Greece weighed heavily; the Italian headline dropped 5.0pts to 43.3 and the Greek was down 2.7pts to 40.5

€ German unemployment rose unexpectedly by 10k in October, the first increase since Jun’09, following a revised decline of 22k in September (originally -26k); the unemployment rate rose to 7.0% from 6.9%

£ The UK construction PMI rose in October to a 5-month high of 53.9 from 50.1 in September and surprised versus the consensus forecast of 50.0

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