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Financial Markets: Headlines for November 21

November 21, 2011

$ The US deficit-reduction supercommittee may announce today that it has not reached agreement on a $1.2trn package ahead of the final Nov. 23 deadline – Bloomberg

€ Spain’s People’s Party won an absolute majority in Sunday’s elections, taking 186 seats in the 350-seat lower house to unseat the Socialist government from power; Mariano Rajoy will not be sworn in as Prime Minister until mid-December although focus will shift immediately to his plans for greater austerity

EQ The S&P 500 traded in a narrow range and ended flat on the session at 1215.65 on Friday; down 3.8% on the week as concerns about spillover effects from the Eurozone crisis weighed on sentiment, overshadowing more signs this week of a pick-up in US economic activity in Q4; the Citigroup US economic surprise index rose to the highest levels since early-April; in Europe the major stock indices of Italy, Portugal and Spain rose slightly on Friday, but the broad Stoxx 600 lost 0.8% to bring the week’s decline to 3.7%

FI USTs fell on Friday but gained over the week as pessimism rose regarding European officials’ willingness to act quickly to stem contagion; the US 10yr yield rose 5bps on Friday to 2.010% but was down from 2.13% at the start of the week; Bunds declined as well on Friday and the 10yr cash yield rose 7bps to 1.962%; the Italian 10yr yield fell further, down 19bps to 6.631%, back to levels seen at the start of the week amid the ongoing ECB purchases of Italian and Spanish bonds according to reports; Spanish 10yr fell 11bps to 6.312% and French was down 17bps to 3.446%

FX The euro rose 0.4% on Friday to 1.351 and slightly pared the week’s loss to 1.9%

$ NY Fed President Dudley (voter): "growth has picked up modestly in the second half of 2011, but not enough to bring unemployment down”; strong headwinds are preventing a more vigorous recovery; the Fed will continue to do everything in its power to promote employment and price stability

$ Fed’ Fisher (voter): "Unless our politicians get their act together…the bond market will take their vengeance on us as well”; he sees inflation trending back down to 2%

$ Fed’s Williams (voter in 2012) does not expect the US economy to reach full employment until 2016; "Fiscal policy actions that reduce uncertainty and stimulate recovery are badly needed"

$ The US House voted down legislation on an amendment to the Constitution that would require the federal government to balance the budget; a 2/3 majority was required but the votes in favor were only 261 vs. 165 against

$ US index of leading indicators rose 0.9%MoM in October, exceeding the consensus forecast of +0.6%; the September gain was revised down to +0.1% (originally +0.2%); 9 of 10 indicators made a positive contribution in October; the 6-month annual change accelerated to a 3-month high of +6.1%, up from 3.5% previously

€ European officials reportedly may begin talks with the IMF about how the ECB could lend to the IMF so that broader sovereign support could be provided; talks could result in an announcement at the EU Summit on Dec. 9 – Dow Jones

€ ECB President Draghi regarding expansion and enhancement of EFSF: "Where is the implementation of these long-standing decisions?” he said the ECB could lose credibility very quickly which would have “huge” costs; downside risks to Euro area growth have increased; weaker growth will moderate inflation

€ ECB’s Weidmann: "The lack of success in containing the crisis does not justify overstretching the mandate of the central bank and making it responsible for solving the crisis… "a clear commitment to our mandate is an indispensable element of a prosperous future for the euro"

€ German FinMin Schaeuble said that if ECB unleashed its full firepower, which is not provided for legally, calm in financial markets would last for a few weeks at most

€ Italian PM Monti won the confidence vote in the Chamber of Deputies (556:61); he said that he supported the idea of euro bonds when he was an economist, but wants to discuss with German and French leaders before taking a stance as PM

£ UK PM Cameron said a credible firewall is needed for the Eurozone and that all institutions should stand behind the currency; the European Commission’s request for 5% increase in EU budget is not acceptable

€ German producer prices rose at a slower monthly pace of 0.2% in October from 0.3% in September although the gain was above consensus at +0.1%; the annual gain eased to 5.3% from 5.5%, down from the 2011 high of 6.4% reached in April

€ Italian industrial orders plunged 8.3%MoM in September in another sign the economy is in recession, the sharpest decline since Aug’09 and below the consensus forecast of -6.0%; the August gain was revised down to +4.2% (originally +5.0%); sales of industrial goods fell 5.4%MoM, the largest percentage decline since Nov’08


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