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Financial Markets: Headlines for November 11

November 11, 2011

EQ US equities rose moderately on Thursday, stabilizing after the sell-off in the previous session; stocks opened higher after stronger-than-expected US figures on initial jobless claims and foreign trade and then chopped around during the rest of the session; in Europe, politicians stressed unity in the Eurozone and central bankers noted the price-stability mandate of the ECB; Greece announced a prime minister and Italy sold €5bn in 1yr bills; the S&P 500 gained 0.9% to 1239.70 but remained stuck below the 200dma of 1272.33; most European bourses fell again on Thursday although the Dax gained 0.7% and Italy’s FTSEMIB rose 1.0%; Stoxx 600 lost 0.4% vs. -1.7% in the previous session

FI USTs declined but pared losses a bit after the 30yr bond sale; the curve steepened, with the 5yr yield up 4bps to 0.906% and the 30yr +8bps to 3.106%; Italian government bond yields declined on Thursday below 7% amid reportedly aggressive ECB purchases at the shorter end and as Italy sold €5bn in 12m bills as targeted; the 2yr BTP yield dropped 70bps to 6.306% and the 10yr fell 35bps to 6.86%; however, French yields rose sharply (10yr +27bps to 3.446%) and there was some confusion about the country’s credit rating – S&P affirmed the AAA rating toward the end of the European session; the German 10yr cash yield rose 6bps to 1.774%

FX The euro made moderate gains against most major currencies on Thursday while the dollar and yen were mixed; EUR/USD rose from an intraday low of 1.348 to 1.360 by the US close, up 0.9% over the sessions; EUR/GBP gained 0.4% to 0.854 but was still down 0.9% from a week ago; USD/JPY declined 0.2% to 77.66

$ Fed Chairman Bernanke said the Fed is focused “intently” on job creation; the Fed estimates full employment as consistent with an unemployment rate of 5-6% and conditions are far short of that; inflation appears to be moderating and is expected to remain close to the Fed’s objective for the foreseeable future; on the Eurozone, "it’s really important that they implement those steps, that they execute them forcefully and that they take whatever actions are necessary to stop the European crisis"

£ The Bank of England MPC did not announce any policy changes – Bank Rate was left at 0.5% and the asset purchase target at £275bn following the surprise October decision to raise purchases by £75bn; the Inflation Report will be published Wednesday and the meeting minutes on 23 Nov.

$ The US sold $16bn in 30yr bonds at a high yield of 3.199%, up from 3.120% at the 13Oct auction; the bid cover at 2.40 was the weakest since August and below the 10-auction average of 2.65

€ Italy sold €5bn in 12m bills as targeted; the yield, although below 7%, was sharply higher at 6.087% versus 3.570% at the previous sale on 11Oct; the bid/cover ratio was slightly higher at 1.99 vs. 1.88 previously

€ Standard & Poor’s clarified that France’s credit rating is AAA, after erroneously sending a statement earlier to some clients that suggested the rating had been changed; France’s market regulator AMF opened an investigation into the incident

€ Greece: Former ECB VP Lucas Papademos will head the national unity government, which has the specific task of implementing the EU bailout deal; he said that all Greeks must contribute to the difficult process of adjusting the economy; there is no set date for new elections although 19Feb is a point of reference

€ EFSF head Regling said the EFSF may not be able to be leveraged to 4 or 5 times; “The political turmoil we saw over the past 10 days probably reduces the potential for leverage…what happened in Europe and in Greece last week has discouraged some of the foreign investors”; still, the EFSF is ready to provide help if a country requests it

€ German Chancellor Merkel said Germany’s only goal is to stabilize the Eurozone in its current form; EU Commission spokesperson Hansen: “we cannot allow the euro zone or the European Union to fragment because it would be very much against the interest of the European people as a whole”

€ ECB’s Kranjec: "The scenario of a euro zone break-up is not being considered and there is no point in debating it…Things are going in the direction of harmonising public finances, coordinating budget policies, which is welcome”

€ ECB’s Bini Smaghi will resign from the ECB’s Executive Board and will take a post at Harvard next year

€ ECB’s Praet said it is not the ECB’s job to intervene in markets to support a country suffering from fundamental doubts about its debt sustainability

€ German Bundesbank VP Lautenschlaeger said that monetary financing by the ECB would lead to a massive loss of trust in the euro; there are no signs currently of a credit crunch; German banks can finance themselves in the money market

€ The Austrian central bank (OeNB) announced a bilateral deal with the People’s Bank of China that allows the OeNB to invest in renminbi-denominated assets; this is the first such agreement with a non-Asian central bank

$ US initial jobless claims were 390k in the week to 5 November, the lowest recorded since 2 April; the result was below the consensus forecast of 400k and down from a revised 400k in the week prior (originally 397k); the 4wk moving average was also 400k and the lowest since mid-April

$ The US trade balance rose to -$43.1bn in September from a revised -$44.9bn in August (originally -$45.6bn), as exports rose at a faster pace of 1.4%MoM while imports increased 0.3%; the better-than-expected September result and the upward revision to the August figure may support an upward revision to the trade component of Q3 GDP; the level of the real, price-adjusted Q3 trade balance was up 2.8% from Q2 at the highest level since May’10

$ US import price pressures continued to moderate, this month led by a decline in food & beverage prices (-1.0%) as well as petroleum (-1.0%); prices declined 0.6%MoM in October which was below the consensus forecast for no change; the September figure was revised to flat from +0.3% reported originally; the annual gain moderated to 11.0% from 12.9%

€ The European Commission forecasts a Eurozone Q4 GDP decline of 0.1%, putting 2011 growth at 1.5%; growth of +0.5% is expected in 2012 before a pick up to 1.3% in 2013; "We do not expect a recession in our baseline scenario. But the probability of a more protracted period of stagnation is high. Given the unusually high uncertainty around key policy decisions, a deep and prolonged recession complemented by continued market turmoil cannot be excluded"; inflation in 2011 is expected at 2.6% before falling to 1.7% in 2012

€ The German October CPI was confirmed at 2.5%YoY, down from 2.6% in September, but the EU-harmonized measure was revised up to 2.9% from 2.8% reported originally, remaining at the highest level since Sep’08

€ The French October CPI rose to 2.3%YoY from 2.2% previously and was in line with the median forecast at the highest level since Oct’08

€ French manufacturing output fell 1.6%MoM in September and disappointed versus the consensus forecast of -0.6%; the August gain was revised down to +0.6% (originally +0.7%); Italian industrial production dropped the most since Dec’08 and was down for the 4th month out of the past 5; output declined 4.8%MoM and the August gain was revised down to +3.9% (originally +4.3%)

 

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