BOE Cover Falls To 2.49 At 3-7 Year Reverse Gilt Auction

October 22, 2012 at 14:00 GMT

LONDON (MNI) – The Bank of England saw the cover ratio at its
stg1 billion three to seven year reverse gilt auction Monday fall to
2.49 from 2.72 in the corresponding auction a week ago.

In the latest tranche of stg50 billion of quantitative easing the
average cover ratio for three to seven year auctions has been 2.6, with
the high of 3.69 in the first auction of this tranch, back on July 9.
The low of 1.94 was seen back on September 10.

There had been a trend up in cover ratios in recent auctions, with
doubts over whether the BOE’s Monetary Policy Committee will vote to
extend quantitative easing at its November meeting. Many analysts still
expect a QE extension, but it is seen as a close call.

In total, the BOE’s Monetary Policy Committee has sanctioned stg375
billion of asset buying under its QE scheme. As at the close of business
Thursday the BOE had made stg368.807 billion of purchases and, following
today’s auction, it has to complete only stg5.193 billion of purchases
to hit the target.

As the BOE is currently purchasing stg3 billion of gilts a week in
three weekly auctions, and all auctions have been fully covered, this
tranche of QE is set to come to an end in the October 31 auction.

This entails there will be no auctions in the week starting
November 5 ahead of the MPC’s November 7 and 8 policy meeting.

Under the BOE’s current programme gilts with a residual maturity of
3-7 years are being purchased on Mondays, over 15 years on Tuesdays and
7-15 years on Wednesdays.

MNI US Capital Goods Indicator 44.8 Thru Oct 19 Vs 43.0

October 22, 2012 at 13:40 GMT

NEW YORK (MNI) – MNI’s U.S. capital goods indicator reversed the
prior week’s dip with a 1.8 gain in the Oct. 19 period to 44.8 which is
still, however, well below 50 to indicate sizable contraction in
year-on-year business activity, according to the results of MNI’s weekly
survey released Monday.

Sales are +0.8% year-on-year. This excludes distortions from
acquisitions but includes effects from foreign exchange where pressures
are easing a bit, now shaving three percentage points from export sales
which is down from four percentage points.

Year-on-year income growth for the sample is zero. The period’s
sample size is 291 companies.

Results so far for the September quarter point to no change in
sales from the June quarter. For the December quarter, guidance from the
sample is calling for a low single digit gain.

The numbers, however, are proving better than the commentary which
for the most part is increasingly downbeat.

Some are relying on cost cutting to make profit targets and some
seem poised to announce layoffs. Reports out of chip equipment and
industrial computers point to continued contraction.

Yet for most industries the sample reports still solid conditions
including for agriculture, autos, chemicals, energy, and general
industrial.

Many also cite strength in aerospace. But for MNI’s sample, there’s
very little change with or without aircraft. The sample’s ex-aircraft
index, based on 281 non-aircraft companies in the latest period, is 44.1
with sales and income matching the entire sample at +0.8% and zero.

When excluding suppliers to aerospace, the results are nearly the
same with this 172 company sample showing a 44.8 index reading and +1.8%
for sales and +2% for income.

By regions, comments on Europe are uniformly negative while concern
over slowing in China appears to be easing a bit.

Editor’s Note: MNI compiles its capital goods indicator based on a
weekly sample of company news and data.

European Stocks Rise This Week on U.S. Economic Reports

European stocks climbed this week as Moody’s Investors Service reiterated its investment-grade debt rating on Spain following a review and U.S. reports on retail sales, manufacturing and house building beat estimates.

ArcelorMittal advanced 9.8 percent after a report said the steelmaker is considering the sale of a minority stake in its Canadian iron-ore unit. Remy Cointreau SA (RCO) slumped 9.3 percent after France’s second-biggest distiller posted an improvement in first-half sales that trailed analysts’ projections.

The Stoxx Europe 600 Index (SXXP) climbed 1.7 percent to 274.08 this past week, after dropping 1.7 percent the previous week. The equity benchmark has rallied 17 percent from this year’s low on June 4 as European Central Bank policy makers approved an unlimited bond-buying program and the Federal Reserve announced a third round of quantitative easing.

“The rating assessment of Spain at the beginning of the week certainly gave the market a positive shove,” said Christian Zogg, who manages about $540 million as head of equity and fixed income at LLB Asset Management AG in Vaduz, Liechtenstein. “The U.S. data turned out to be good news as well. The market may hold rather well until the end of the year; one just needs to endure the volatility.”

National benchmark indexes gained in every western-European market except Norway andIceland this past week. Germany’s DAX advanced 2 percent, while the U.K.’s FTSE 100 added 1.8 percent. France’s CAC 40 and Spain’s IBEX 35 each rallied 3.4 percent.

Spain Rating

Moody’s decided against removing Spain’s investment-grade credit rating on Oct. 16. The ratings company said that the risk of the country losing access to credit markets has fallen because the ECB now has the power to buy its debt. Moody’s assigned a negative outlook on Spain’s bonds as it concluded a review that it began in June.

Cyprus, Portugal, Ireland and Greece all have ratings below investment grade. S&P has a negative outlook on its BBB- rating for Spain, while Fitch Ratings has given the country a BBB score, which is two levels higher than junk.

European Union leaders agreed on a timetable to introduce common regulation of the euro area’s 6,000 lenders by Jan. 1 2014. At a two-day summit, the 27 member states decided to put in place the framework for a single regulator by the end of this year. The ECB will move to oversee all the banks in the currency area in stages next year.

U.S. Economy

In the U.S., a Commerce Department report on Oct. 15 showed that retail sales climbed 1.1 percent in September, beating the median economist forecast for a 0.8 percent gain. Sales increased a revised 1.2 percent in August.

A separate U.S. release on Oct. 17 showed that house building surged last month to the highest level in four years. Starts jumped 15 percent to an annual rate of 872,000, the most since July 2008 and more than every forecast in a Bloomberg survey of economists. The median estimate of 81 economists polled by Bloomberg had called for a reading of 770,000.

A measure of manufacturing in the Philadelphia region, published on Oct. 18, jumped to 5.7 this month. That beat the median analyst forecast for a reading of 1.

Bankia SA surged 12 percent, leading gains in a gauge of European lenders this past week to post the best performance as a group. Banco Bilbao Vizcaya Argentaria SA rose 8.7 percent and Banco Espirito Santo SA climbed 12 percent.

ArcelorMittal Rallies

ArcelorMittal advanced 9.8 percent as the Financial Times reported on Oct. 18 that the world’s biggest steelmaker is considering the sale of a minority stake, possibly 30 percent, in its Canadian iron-ore unit. The newspaper cited unidentified people familiar with the matter. The unit may be valued at $8 billion to $10 billion, the FT said.

Douglas Holding AG jumped 7.9 percent after Advent International Corp. made a 1.5 billion-euro ($2 billion) bid for the retailer.

Advent made an offer of 38 euros per share for the German retailer via investment vehicle Beauty Holding Three AG. The retailer’s three largest shareholders have a binding commitment to accept the bid, Advent said.

Waertsilae Oyj soared 13 percent as the maker of ship engines and power plants reported third-quarter net income that exceeded estimates and raised its full-year sales-growth forecast.

Wincor Nixdorf AG, Europe’s biggest maker of automated teller machines, increased 11 percent on speculation that its new open-source technology platform will lead to more profitable mobile-payment systems.

Remy Cointreau

Remy Cointreau dropped 9.3 percent. Organic revenue rose 13 percent in the six months through September, the company said on Oct. 18. That missed the median estimate of nine analysts for an 18 percent gain. Revenue climbed 5.3 percent in the second quarter. It had surged 24 percent in the first three months of the fiscal year.

Man Group Plc slumped 10 percent. The world’s biggest publicly traded hedge-fund manager said outflows increased 57 percent in the third quarter.

“Investor sentiment and -- consequently -- the outlook for flows continues to be subdued,” Chief Executive Officer Peter Clarke said in a statement on Oct. 18.

Unemployment falls in 41 states in September

4:10PM EDT October 19. 2012 - Unemployment rates fell in 41 states and the District of Columbia last month, reflecting a sharp drop in the nation's jobless rate just weeks before the presidential election.

Unemployment increased in six states, and three states showed no change.

Among key swing states in the presidential race, the jobless rate declined in nine, was unchanged in two and increased in one.

INTERACTIVE: Where the jobs are

The national unemployment rate was 7.8% in September. That was down from 8.1% in August and 9% in September 2011.

JOBS REPORT: More stories on jobs and employment trends

The 12 presidential battleground states are Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, Virginia and Wisconsin.

Nevada and Iowa posted the largest declines, with the jobless rate falling to 11.8% from 12.1% in Nevada, and to 5.2% from 5.5% in Iowa.

The rate fell to 7% from 7.2% in pivotal swing state Ohio, to 8% from 8.2% in Colorado, and to 7.3% from 7.5% in Wisconsin.

Unemployment also dropped slightly in Florida, Michigan, New Mexico and North Carolina. It was unchanged in Virginia and New Hampshire. And it rose in Pennsylvania to 8.2% from 8.1%

Among all the states, South Carolina posted the largest decline, with unemployment falling to 9.1% from 9.6%. The rate also fell four tenths of a percentage point in California, to 10.2%; in Hawaii, to 5.7%; in Louisiana, to 7%; and in Utah, to 5.4%.

Unemployment increased to 6.5% from 6.3% in Massachussets. And besides Pennsylvania, it also rose slightly in West Virginia, Vermont, Oklahoma and Mississippi.

Overall, Nevada continued to have the highest unemployment rate, at 11.8%, followed by Rhode Island, at 10.5%, and California's 10.2%. North Dakota, which is benefiting from an oil boom, continued to have the lowest rate at 3%.

Among regions, unemployment was highest in the West last month and lowest in the Midwest

Spanish Yields Drop to 6-Month Low Amid Moody’s Rating Optimism

Spain’s 10-year bond yield fell to the least in more than six months after Moody’s Investors Service kept the nation’s credit rating at investment grade, easing concern holders tracking indexes would be forced to sell the debt.

The German 10-year yield climbed to a month-high even as Prime Minister Mariano Rajoy said he’s not facing pressure to seek a sovereign bailout after meeting with European Union leaders in Brussels, damping demand for safer assets. The Iberian nation sold more than its maximum target of securities due in 2015, 2016 and 2022 at an auction on Oct. 18.

“Moody’s concluding Spain should keep its current rating has bought a lot of relief and that should provide some kind of lasting comfort to investors,” said Jamie Searle, a fixed- income strategist at Citigroup Inc. in London. “Between now and year-end the outlook has improved, thanks to the Moody’s decision.”

Spain’s 10-year bonds advanced, pushing the yield down 25 basis points to 5.37 percent at 4:44 p.m. yesterday, the biggest weekly slide since the five-days ended Sept. 7. The 5.85 percent security due January 2022 rose 1.84, or 18.40 euros per 1,000- euro face value, to 103.40.

The rate dropped to as low as 5.26 percent, the lowest since April 2.

The benchmark Spanish yield slid as much as 34 basis points on Oct. 17 after Moody’s assigned a negative outlook on its Baa3 rating, one step above junk, a day earlier. That’s the biggest intraday tumble since European Central Bank President Mario Draghi outlined details of the ECB’s bond-buying program on Sept. 6.

Yield Spread

The additional yield investors demand to hold Spain’s 10- year bonds over equivalent bunds has narrowed more than 110 basis points since Sept. 5 to 3.77 percent. ECB purchases are conditional on the nation requesting sovereign aid. Moody’s cited the willingness of the central bank to purchase Spain’s government bonds on the secondary market in its decision.

The Iberian nation is set to auction three- and six-month bills on Oct. 23, after the region of Galicia votes for its regional assembly this weekend. The Basque Country also goes to the polls, on Oct. 21.

Italy’s 10-year bond yields slid to as low as 4.70 percent yesterday, the lowest level since March 9, after the nation sold yesterday it received orders for more than 18 billion euros of retail securities, double that of its two previous offers combined. The benchmark rates lost 22 basis points in the week to 4.77 percent.

German 10-year bund yields added 15 basis points to 1.60 percent, touching 1.66 percent two days ago.

Spain’s government bonds have returned 4.1 percent this year through Oct. 18, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, while German debt has gained 2.2 percent.