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Financial Markets: Headlines for November 18

November 18, 2011

EQ Equities declined broadly across sectors in the Euro area and US led by commodity-related shares, industrials and financials; the S&P 500 fell 1.7% to 1216.13, below the 100dma and at the lowest close since 20Oct; Europe’s Stoxx 600 declined 1.3% led down by basic materials (-2.3%) and financials (-2.1%)

FI The ECB was in the market for Italian and Spanish debt, which helped pull 10yr yields down from new euro-era highs reached early in the session after Spain sold 10yr bonds at a sharply higher yield of 6.975%; the Italian 10yr fell 19bps over the session to 6.794%; the French 10yr yield moderated as well and ended the day down 7bps at 3.614%; Spanish still ended up 7bps at 6.421%; USTs chopped around but ended stronger, with the yield on the 10yr down 4bps to 1.960%, the lowest close since 5Oct; $ 3m Libor climbed further and jumped 0.8bps to 0.47944% on Thursday, the highest since Jul’10

FX EUR/USD moved higher after US jobless claims came in lower-than-expected, but pared gains by the US close to end flat at 1.347, remaining at the lowest level in more than a month; the yen outperformed on the session, up across the board versus major currencies – USD/JPY fell 0.1% to 77.00; Cable rose slightly to 1.576

$ NY Fed President Dudley (voter): "If additional asset purchases were deemed appropriate, it might make sense to do much of this in the mortgage-backed securities market"; the Fed is not out of ammunition

$ Fed’s Pianalto: "Our policy is appropriate in this economic environment…But in this economy, monetary policy alone cannot cure all of the economy’s ills”; she expects growth of 2.5% in 2012 and 3% in 2013

€ Spain sold €3.56bn in 10yr (Jan’22) bonds at 6.975%, just a few bps below 7% and a euro-era high; bid/cover was just 1.54; at a similar auction on 20Oct, Spain sold €1.8bn in Apr’21 bonds at an average yield of 5.433% with b/c at 1.76

€ France sold €7bn in fixed-rate bonds, the largest issue being $3.3bn in 2.5% 2016 notes, which priced with a yield of 2.82%, up from 1.80% at the previous similar auction on 15Sep

€ Eurozone officials and the IMF have reportedly discussed the possibility that the ECB could lend to the IMF which could then support Eurozone governments – Reuters

€ EFSF leveraging options have reportedly received positive feedback from Asian investors, who would be ready to participate if market confidence improves and volatility falls; there are no plans for Italy to access the EFSF – Reuters

€ German Chancellor Merkel again called for EU treaty changes and said that political solutions are needed to end the crisis; "if politicians think the ECB can solve the euro crisis, then they are mistaken”

€ German FinMin Schaeuble said there are signs that market contagion is having an effect on the real economy; banks must be shielded and officials should be vigilant that effects do not spread to the insurance sector

€ Italy PM Monti won a confidence vote in the Senate after he outlined his government’s plans; first steps are measures to confront the current crisis of confidence and ensure sustainability of public finances; then reforms to “modernize economic and social structures”

€ IIF head Dallara is encouraged about the prospects for a deal on Greek debt, but approval of a 2nd EU/IMF aid programme is crucial; he believes consensus can be reached to involve 70-80% of private holders of Greek debt; he does not envision a broad range of exchange options for creditors this time; if all goes smoothly, debt relief could begin in early January

$ US initial jobless claims fell for a 3rd consecutive week, to 388k in the week to 12Nov from an upwardly revised 393k in the week prior (originally 390k); claims were the lowest since early April and down 16k from a month ago; continuing claims fell 57k to 3.608m, the lowest level since mid-Sep’08

$ US Philly Fed manufacturing PMI fell to 3.6 in November from 8.7 in October but remained above the 3- and 6-month moving averages after the summer slump; the new orders and shipments balances fell from October but remained in positive territory at 1.3 and 7.3 respectively; the employment balance climbed to 12.0 from 1.4 previously and was the highest since May (22.1); the outlook for the next six months improved and was the strongest since March

$ US housing starts fell 0.3%MoM in October versus the median forecast of -7.3%, but the September gain was downwardly revised and chopped to +7.7% from +15.0%; thus the annualized pace of starts was little changed at 628k versus 630k in October (originally 658k)

€ Eurozone construction output fell 1.3%MoM in September, the largest decline so far this year, and the August figure was revised to -0.4% (originally +0.2%); however in Q3 as a whole, output was up 0.7% vs. +0.3% in Q2

£ UK retail sales rose again in October, confounding signals from the other survey measures of retail activity and the depressed levels of consumer confidence; sales rose 0.6% versus a downwardly revised gain of 0.5% in September (originally +0.6%); exceeding the consensus forecast of -0.3%; sales excluding auto fuel were up at a steady pace of 0.6%MoM; according to the Office of National Statistics, “feedback from retailers suggests that the monthly increase…was a result of pre-Christmas sales and in store promotions”

£ UK Nationwide consumer confidence dropped to 36 in October from 45 in September, a result below the consensus forecast of 43 and the lowest in the series history since May’04


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