Market Rumours

2010/08/03 20:01DJ Fed Call:No Liquidity Operation Due; Fed Funds At 0.2050%
NEW YORK -The Federal Reserve has no liquidity operations scheduled for Tuesday. Fed funds were last quoted at 0.2050%, compared to the federal-fund target range of 0 to 0.25%, according to Tullett Prebon data.

2010/08/03 18:37DJ Tropical Storm Colin Forms In Atlantic Ocean
MIAMI (AFP)--A tropical storm formed in the Atlantic Ocean Tuesday, moving north-northwest in the direction of the eastern seaboard of the United States, U.S. weather authorities said. Tropical Storm Colin's projected path, however, remained well clear of the Gulf of Mexico, where BP PLC (BP) engineers were hoping to permanently plug the oil spill. Colin was the third tropical storm of the Atlantic hurricane season, the National Hurricane Center said. At 0900 GMT the storm was 1,525 kilometers (948 miles) east of the Lesser Antilles, with maximum sustained winds of 65 kilometers per hour, the center said. 'Some additional strengthening is forecast during the next 36 hours or so,' the center said. 'Tropical storm force winds extend outward up to 35 miles (55 kilometers) from the center,' it said.

2010/08/03 18:33*DJ 3-Month USD Libor Falls To 0.43469% Vs 0.44469% Monday

2010/08/03 17:49DJ UK PM Reminds Cabinet Deficit Is Most Urgent Issue - BBC
The U.K. prime minister and his deputy have written to cabinet colleagues to remind them that reducing the deficit is the 'most urgent issue facing Britain,' the BBC reports on its website Tuesday. But David Cameron and Nick Clegg also say any proposals to promote economic growth will be treated favorably in the departmental spending review. The joint letter comes as government ministers are negotiating with the Treasury over the scale of the cuts with talks particularly tense over defence spending and welfare reform. The letter says welfare reform, greater support for children and investment in infrastructure are government 'priorities', the U.K. broadcaster reports. Full story: http://www.bbc.co.uk/news/uk-10847659

2010/08/03 17:31=DJ DATA SNAP: Euro-Zone Producer Price Inflation Lower Than Expected
LONDON -Factory-gate prices across the 16 countries that share the euro rose slightly less than expected in June, suggesting the European Central Bank faces little pressure to tighten monetary policy in the near term, official data showed Tuesday. Euro-zone industrial producer prices excluding construction rose 0.3% from May and were 3.0% higher than in June last year, the European Union's Eurostat agency said. Economists were expecting increases of 0.4% on the month and 3.1% on the year, according to a Dow Jones Newswires survey last week. In May, wholesale prices rose 0.3% on the month and 3.1% on the year. The figures suggest inflationary pressures remain benign in the currency area and should allow the ECB to keep its interest rates at record lows for some time. The ECB is widely expected to leave its key rate at 1.0% after its next policy meeting Thursday. Recent surveys of euro-zone manufacturing purchasing managers show input prices have risen for goods such as steel, electronic components, packaging, and plastics. Stronger demand from producers has fostered a sellers' market in some goods, the surveys showed. Euro-zone consumer price inflation accelerated to a 20-month high of 1.7% on the year in July, closer to the ECB's target of just below 2.0%. But economists said the rise was unlikely to worry the ECB because it was more a reflection of food and energy prices last year than a sign of a significant rise in inflationary pressures. Euro-zone producer prices excluding construction and energy increased 0.1% on the month and 1.9% on the year in June, after gains of 0.5% on the month and 1.7% on the year in May, Eurostat said. Energy producer prices increased 0.6% on the month and 6.0% on the year in June, after rising 0.2% on the month and 7.3% on the year in May. Eurostat website: www.europa.eu.int/en/comm/eurostat

2010/08/03 17:29=DJ Forex Focus: Euro Rally Built On Weak Foundations
LONDON -Confidence in the euro is rapidly draining away. For the last week or so, the single currency has managed to stay above $1.30. On Monday, it even reached a three-month high at nearly $1.32. But this support has had much more to do with dollar weakness than with independent euro strength. If anything, the single currency has struggled to hang on to the gains it has made. A break over $1.3050 has hardly given the currency the upward momentum that had been anticipated and even a stronger-than-expected manufacturing purchasing managers' index for the euro zone on Monday failed to provide anything more than a short-lived spike. See the euro's performance over the last few days: http://www.dowjoneswebservices.com/chart/view/4348 The problems for the euro are fairly simple. Like most other major economies, the euro zone experienced a healthy economic bounce in the first half of this year, evidence of which is coming through in the data now. In the euro zone's case, the bounce was probably even greater than expected given the weakness in the euro earlier in the year. This has coincided with rising hopes that the worst of the sovereign-debt crisis in the region is over, especially after the results of recent bank stress tests were published the week before last. In the U.S., meanwhile, economic data have disappointed. This has raised fears of a double-dip recession, increased talk of further quantitative easing by the Fed and driven U.S./euro zone yield spreads further in favor of the euro. Spreads could well remain this way for now, especially if U.S. data continue to disappoint and if European Central Bank President Jean-Claude Trichet expresses any hawkish sentiments after this Thursday's policy meeting. There are already fears that U.S. employment data Friday will show another 60,000 decline in non-farm payrolls. That would be less negative than the 125,000 fall in June but the improvement is already being put down to an increase in part-time jobs. The problem for the euro, is that while the U.S. recovery may be slowing now, it is the euro zone that will be slowing next. Mansoor Mohi-uddin, head of currency strategy at UBS, summed it up nicely: 'The longer-term picture remains bearish. The structural problems of high debts, low growth and diverging current account imbalances remain, and fiscal austerity will likely undermine euro-zone growth this year and next. The ECB will not be in a position to raise interest rates until well into 2011, at the earliest.' Also, there is still the little problem of sovereign risk. While markets have calmed down for now, there remains a high risk of further funding problems, especially when the coming economic slowdown hits the already-suffering peripheral members of the euro zone. So, as long as current fears about further monetary easing in the U.S. remain, the euro will probably continue to find support, helping to keep it around current levels. But as yield spreads eventually start to move out again, chances are that the euro will swiftly see the end of its recent rally. A story in the Wall Street Journal that the Fed is considering the purchase of new mortgage or Treasury bonds has raised the specter of further monetary easing in the U.S. This has further undermined the dollar against the euro early Tuesday, with the single currency rising a little to $1.3276 by 0645 GMT from $1.3172 late Monday in new York, according to EBS. The euro was unchanged at Y113.87 but the dollar also fell to Y86.39 from Y86.51. Bloomberg TNI FRX POV Reuters USD/DJ Thomson P/1066 or P/1074

2010/08/03 16:15DJ Benchmark 10-Year JGB Yield Renews 7-Year Low After Strong Tender
TOKYO -A well-bid auction of 10-year Japanese government bonds revealed strong demand among Japanese banks and institutional investors Tuesday, and sent the benchmark yield to a fresh seven-year low in late afternoon trade. That yield could fall further this week, possibly breaking 1.000%, as investors take the solid tender result as a greenlight to buy JGBs. The yen's strength, which hurts Japanese share prices, could also support safe-haven JGBs if it persists, analysts said. The fall in JGB yields is a welcome development for the government of Prime Minister Naoto Kan, which is trying to trim the country's massive public debt without derailing the economic recovery. Lower yields make that balancing act less difficult, by reducing the government's debt servicing costs. The 10-year yield fell steadily Tuesday afternoon, standing at 1.030% at 0700 GMT, its lowest level since August 2003. Japan's Finance Minister Yoshihiko Noda earlier Tuesday hailed the fall in yields, calling it a 'flight to quality' that reflects investors' confidence in the government securities. The Ministry of Finance sold Y1.998 trillion of the 10-year cash bond Tuesday, at a lowest price of 100.33 yielding 1.063%. The result was slightly stronger than expected. Dealers had expected a lowest price of 100.32. The note is a reopening of July's issue, carrying its 1.1% coupon, the lowest in eight years. Such low yields would generally be expected to discourage investors seeking higher returns. But Japanese banks now have excess cash due to low levels of lending. They are funneling those funds into JGBs, supporting the market, as Tuesday's tender showed, analysts said. Despite some recent improvement, the low level of business spending in Japan has in part meant banks are extending fewer loans and facing higher deposits. 'Bank treasuries have a simple dilemma, they have deposits and they need to hedge,' said Christian Carrillo, senior rates strategist at Societe Generale. For this reason, buying JGBs 'is very simple from a bank perspective, they don't have much of an alternative,' Carrillo said. Other analysts echoed that view, saying Japanese investors are likely to continue supporting JGBs in the coming months. 'Even if the coupon in today's auction had been revised down to 1.0%, I don't think that would have mattered that much,' as demand from Japanese investors remains strong, said RuiXue Xu, debt markets strategist at The Royal Bank of Scotland. Besides the favorable supply/demand conditions, domestic players are also buying safe-haven government debt due to concerns that the yen's recent strength could continue, Xu said. A stronger yen hurts Japan's exporters, weighing on equities to the benefit of JGBs. At 0700 GMT, the dollar stood at Y86.32, down from its level late Monday in New York at Y86.51.

2010/08/03 15:01DJ Forex Options: Dollar/Yen Volatilities Down; US Jobs Data Eyed
TOKYO -Dollar/yen currency options continued to decline in Tokyo Tuesday, suggesting players are less concerned about the dollar's near-term downside risk--especially before a key data release later this week--and so see less need to hedge against a sharp yen rise.The benchmark one-month at-the-money dollar/yen options volatilities fell to 10.35%/11.05% from 10.50%/11.20% in New York overnight and 10.65%/11.35% Monday in Tokyo.The dollar was trading at Y86.35 at 0322 GMT.'Volatilities may not fall steeply' ahead of the Friday release of U.S. non-farm payroll data for July, said a dealer at a major Japanese bank.But 'after the market sees the results of the U.S. jobs data, volatilities are likely to start declining, with around 10% as the bottom,' the dealer added.The U.S. employment report is expected to show 60,000 job losses in July, compared with 125,000 in the previous month,

2010/08/03 14:10=DJ WORLD FOREX: Possible Fed Easing Pushes Dollar Down Vs Yen -3-
TOKYO -The dollar fell against the yen in Asia Tuesday as an article in The Wall Street Journal about the Federal Reserve considering further monetary easing intensified recent dollar-aversion sentiment. The newspaper said the U.S. central bank may plow back into the market for mortgages or Treasury bonds once their similar holdings mature. Such action would be regarded as monetary easing because market participants had been expecting the Fed to gradually reduce its portfolio. Whether the Fed decides on such action at its policy meeting next week largely depends on Friday's non-farm payrolls data, the report said. 'Speculation about additional policy-easing by the Fed has flared up again, so it is difficult for dealers to buy the dollar aggressively before the data are released,' said Kenichi Nishii, a senior dealer at Bank of Tokyo-Mitsubishi UFJ. Looking ahead, the dollar is likely to fall close to Y85.00 as 'short-term-focused investors are interested in pushing the dollar below Y85.00 due to the Fed's recent dovish comments,' Mizuho Corporate Bank's senior dealer Yuichiro Harada said. Still, a drop to that level would take some time, said a senior dealer at a major bank in Tokyo. That is because large financial companies in Tokyo have placed dollar-buying orders amounting $1 billion or so to be triggered somewhere between Y85.50 and Y86.00. 'It would be a gradual decline for the dollar to Y85.50, though the decline may accelerate from there,' he said. As of 0450 GMT, the dollar was at Y86.40 from Y86.51 in New York Monday. The euro was at $1.3172 from $1.3172 and Y113.80 from Y113.87. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 80.905 from 80.930. The risk-sensitive euro declined due to weaker-than-expected Australian retail sales data, but it should resume rising soon as global share markets remain solid, dealers said. Investor appetite to buy risk-sensitive units such as the euro is growing thanks to European banks' strong earnings reports released earlier this week, Harada said.

2010/08/03 12:47DJ Australia's RBA Leaves Cash Rate Target Unchanged At 4.50% In August
SYDNEY -The Reserve Bank of Australia on Tuesday left its cash rate target steady at 4.50% for a third month in a row in August, a decision widely expected by financial markets following recent news of benign inflation in the second quarter.A survey of 18 economists by Dow Jones Newswires Friday showed all expected the RBA to sit pat in August, with signs of a slowdown in the housing sector, and ongoing unease about the strength of the global economy cementing its decision.Economists said the RBA could be sidelined until the fourth quarter at least when it will get a further update on inflation across the economy. Some expect the RBA to hold rates steady until 2011.The direction of interest rates remains higher for now as economic growth returns to trend in 2010, labor market conditions tighten and a terms of trades boom lifts national income sharply.The RBA will announce new forecasts for inflation in a policy statement Friday.

2010/08/03 11:49DJ Bank Of England Set To Resist Interest Rate Hike - Analysts
LONDON (AFP)--The Bank of England will resist a move to hike its key interest rate from a record-low 0.50% Thursday because a recent upturn in economic growth is seen as temporary, analysts said. Experts fear tight credit and the government's deficit-slashing austerity measures will hamper recovery, despite the U.K. economy enjoying solid second-quarter growth of 1.1%--its strongest pace since 2006. 'The indication is that while most members are encouraged by the sharp improvement in U.K. GDP (gross domestic product) growth in the second quarter, they are treating the performance with a considerable degree of caution and continue to have serious concerns about the outlook,' said IHS Global Insight economist Howard Archer. 'In particular, there is still clear concern over the threat to the recovery coming from slowing global growth and still very tight credit conditions, as well as from the fiscal squeeze that will increasingly start to bite.' The impressive second-quarter growth, published last month, was almost double forecasts for a 0.6% gross domestic product gain and built on the U.K.'s modest emergence from a record-length recession in late 2009. However, Bank of England or BoE Governor Mervyn King warned last week that sustained economic recovery was uncertain. 'The wider economic problems around the world underline the fact that we cannot be confident that the recovery in demand, output and employment here in the U.K. will be sustained,' King told a panel of lawmakers. He added that while the second quarter growth data was 'encouraging,' a gradual improvement in credit conditions 'seems to have come to a halt.' The BoE's key interest rate has stood at a record-low 0.50% since March 2009, as it seeks to breathe life into the economy. The bank is also set to keep rates steady Thursday because inflation is easing, analysts said. Consumer Price Index 12-month inflation, the government's target measure, dipped to 3.2% in June from 3.4% in May, recent data showed. Economists said the news would be welcomed by the BoE's Monetary Policy Committee, or MPC, even though the rate remained far above the government's target of 2%. 'A weaker growth outlook is likely to lower the MPC's inflation projections...beyond 2011,' said David Page, an analyst at Investec banking group. Amid concerns over the growth outlook, BoE rate-setters last month considered pumping more cash into the U.K. economy, minutes of their July meeting showed. Policymaker Andrew Sentance meanwhile called for the second successive month for the central bank to raise its key rate to 0.75%. In the end however, policymakers voted 7-1 to keep borrowing costs unchanged and also decided to not alter its so-called quantitative easing stance. Under QE, the bank pumped GBP200 billion ($317.6 billion) of new money into the economy between March 2009 and February by buying bonds from commercial institutions in the hope that the commercial banks would then use the money made available to increase lending, thereby boosting the economy.

2010/08/03 10:13=DJ MONEY TALKS: Japan FX Margin Cap To Increase Yen Upside Risk
TOKYO -New Japanese restrictions on retail currency traders will mean a structural shift in market supply and demand that could drive the yen significantly higher over time. The rules, which took effect Monday, limit the amount of leverage that amateur investors can use in trading currencies. Retail traders now must limit their foreign exchange positions to within 50 times the amount of collateral they put down. This will be lowered to within 25 times next year, further dampening leveraged trades. Prior to the rule taking effect, positions could be as big as 400 times margin money. Analysts say Japan's amateur currency investors hold predominantly short-yen positions. As these leveraged bets must now be smaller, there will be less net demand to sell yen in the currency market, meaning the next time the U.S. dollar starts to slide against the Japanese currency, there will be less support in the market for the greenback. Retail investors, discouraged by Japan's ultra-low interest rates and limited trading hours in the domestic share market, have been keen buyers of foreign currencies in exchange for the yen. Momentum trades, galvanized when a clear directional shift occurs, will also aid the yen during a bullish run for the currency; seller-resistance is reduced in a market that has a cap on margin trades. The importance of the margin cap is highlighted by the size of currency volume traded by retail investors. A survey of 12 major online brokers showed retail investors in Tokyo made some $120 billion worth of transactions a day in July, according to the Yano Research Institute. Tokyo's total daily FX market volume was $294.1 billion in April 2010, the latest data available, according to the Tokyo Foreign Exchange Market Committee. Traders say the margin cap makes it easier for professional proprietary traders to keep pushing the yen up. Indeed, the dollar fell to Y85.95 last Friday, its lowest point for the year. A slump close to Y80.00 isn't completely unrealistic, traders say. According to analysts the intervention hurdle for Japan, which has stayed out of the currency market since March 2004, is high because the U.S., Japan's key ally, is against currency manipulation. But authorities may not be able to ignore a continued surge in the yen as it hurts exporters, a main growth engine for the economy that's reliant on offshore demand. Of the most importance will probably be the speed of yen gains, and less so the size.

2010/08/03 09:51=DJ FOREX VIEW: Sterling's Rebound Boosted By M&A Flows
NEW YORK -The pound has rebounded dramatically against the greenback as recent data suggest the U.K. economy is outperforming a slow U.S. recovery. But another, often overlooked, factor is also contributing to sterling's comeback: currency flows from merger and acquisition activity. In the past month, net inflows to the U.K. have increased, with foreign companies announcing proposals to buy British engineering group Tomkins PLC (TKS, TOMK.LN), British power grids owned by Electricite de France SA (EDF.FR), and assets owned by BP PLC (BP, BP.LN). In the purchase of a U.K.-based company, the acquiring company buys sterling to complete the deal. However, investors may also buy sterling as a positioning strategy after the announcement of such a deal, hoping to profit from the anticipated inflow. On Monday, the pound hit $1.5906, a six-month high, having gained almost 10% in the past two months. The rebound was initially sparked by release of a belt-tightening budget in the country in late May, and has been supported by stronger-than-expected gross domestic product and industrial production data in recent weeks, as well as the M&A flows. 'The U.K. M&A pipeline continues to improve...adding to an already bullish picture for the [pound],' wrote analysts at Nomura Securities in a recent research note. Nomura analysts said that of the Group of 20 industrial and developing nations, the U.K., along with Brazil and Australia, have the highest levels of net inflows from pending deals relative to the size of their economies. 'From a sentiment perspective, the flows could do the pound some good,' said Geoffrey Yu, currency strategist at UBS in London. Yu cautioned that the size of the deals involved are key in determining how much impact M&A flows will have on the pound. Only very large deals will have much of an influence on currency markets, he said. However, the low volume in markets due to the summer season could exacerbate the impact of these flows on currencies. Simultaneously, a long-awaited rush of cross-border deals has begun and is poised to accelerate, as U.S. companies look to consolidate their peers across the Atlantic, and international corporations make bolder moves following the stabilization of financial markets. The upward pressure on the pound due to M&A acquisitions increased in July in tandem with this resurgence of international deals, according to Yuki Sakasai, a strategist at Barclays Capital in Tokyo. Sakasai said Apache Corp.'s (APA) recent purchase of $7 billion of assets from BP was one of the top five M&A deals of the month. Analysts at Nomura also cited the Apache deal's impact, though they noted support for the pound could be limited by BP's simultaneous fund-raising to pay for clean-up costs, fines and legal damages from the Gulf of Mexico spill, suggesting the proceeds from the sale might quickly return to U.S. soil. The pound could benefit from the recently announced purchase of three U.K. power grids owned by EDF by an investor group based out of Hong Kong for GBP5.8 billion ($9.1 billion), said Nomura. Even though EDF's parent company is based in France, potentially complicating the deal's impact on the pound, Nomura analysts wrote, 'we think this flow is at a minimum [pound] neutral.' Nomura also suggested that the GBP2.9 billion offer by Canada's Onex Corp. (ONEXF, OCX.T) and the Canadian Pension Plan for Tomkins of the U.K. could also support sterling.

2010/08/03 06:56DJ CREDIT MARKETS: High-Grade Issuance Boom Continues
NEW YORK -High-quality corporate credit continued its recent bull run Monday as issuers lined up to sell bonds at low rates normally reserved for U.S. government debt perceived as risk-free.International Business Machines and steel producer ArcelorMittal were among a bevy of corporates to tap the debt markets Monday, enamored by historically low interest rates and relatively stable market conditions created by a stream of benign economic data.Investment-Grade CorporatesIBM raised $1.5 billion in three-year notes launched at 0.30 percentage point over comparable U.S. Treasurys, on the tight end of price guidance at 0.30-0.35 percentage point. The bonds paid an interest rate of just 1%, setting a record for three-year notes below the previous record of 1.75%.ArcelorMittal raised $2.5 billion in a three-part sale that also was launched inside of guidance. A tranche of five-year bonds was launched at 2.30 percentage points; a chunk of 10-year bonds was offered at 2.48; and a reopening of the company's existing bonds due 2039 was launched at 2.55. Guidance had been set at 2.35, 2.55 and 2.60, respectively.IBM last came to market in November with 2.10% bonds due May 2013, and on Monday those bonds were bid around 0.15 percentage points, according to MarketAxess.'Their current three-year issue has been trading extremely rich, meaning they could issue at a fairly aggressive spread,' said Russell Brown, portfolio manager at Silvercrest Asset Management. Last week the May 2013 bonds were trading under 0.1 point, he added, but because it was month-end, a new deal may have been a harder sell.Also in the market Monday were advertising company Omnicom Group Inc., with $1 billion in 10-year bonds, upsized from a $750 million deal; Altria Group Inc., with $200 million more of the 4.125% bonds due 2015 it first issued in June; and Citigroup and Credit Suisse, for $3 billion and $2 billion, respectively.Citigroup added a tranche of five-year bonds to an existing offering of 10-year bonds because there was demand from investors for shorter-dated paper. Both priced at 2.55 percentage points. The five-year tranche was a reopening of the firm's existing 4.75% issue due May 2015.'At the right price, Citi was happy to do it,' said Jonathan Duensing, head of corporate credit at Smith Breeden Associates. Citigroup's 10-year bonds priced at the high end of guidance set at 2.5-2.55 percentage points, highlighting the bifurcation that still exists in the market, added Duensing. It was Citigroup's fourth time to market this year, according to Dealogic.The Markit CDX North America Investment Grade derivatives index tightened by 5.2 basis points to 99.2, while its high yield counterpart improved by 0.8 point to 98.65.Junk BondsJunk bond issuance and trading volumes lagged what was seen in investment grade Monday but the high yield market remained firm.Arch Coal Inc. came to market with $500 million in senior 10-year notes. Proceeds will go toward buying back $500 million of the $950 million currently outstanding of Arch Western Finance's 6.75% senior notes due 2013. Price guidance is in the area of 7.375%, according to a person familiar with the deal, and pricing via joint bookrunners Bank of America Merrill Lynch, Citigroup, Morgan Stanley and J.P. Morgan is expected Monday afternoon.Continental Airlines is also in the market with $750 million of senior secured notes due 2015, guaranteed by Continental subsidiaries Air Micronesia, Inc. and Continental Micronesia, Inc. and by routes, takeoff and landing slots and gate leases. Part of that collateral is pledged to a $350 million secured term loan due June 2011, which Continental will repay following the bond offering, with remaining proceeds earmarked for the advance purchase of mileage credits under branded credit and debit card agreements. Pricing via lead underwriter J.P. Morgan expected later this week.Moody's Investors Service said it now sees more industry sectors with positive outlooks than negative outlooks, as 7 sectors turned to stable from negative during the second quarter. The vast majority of sectors that Moody's tracks have stable outlooks 'indicating that we do not expect their fundamental credit conditions to improve or erode materially during the next 12 to 18 months,' Moody's said.Moody's added that it isn't convinced the positive trend will continue during the third quarter and that it 'recognize[s] that the economic backdrop remains fragile, which could curb further improvement in our industry outlooks.'Asset-Backed SecuritiesCNH Equipment Trust is in the market with a $753.451 million bond, according to a person familiar with the matter.The auto sector bond, dubbed CNH 2010-B, is led by Barclays Capital and BNP Paribas, and is scheduled to price later this week.Last week, Ford Motor Credit Co. sold its $1.387 billion asset-backed bond. Ford's bond was delayed by about a week because of uncertainty created by the financial markets' regulatory overhaul.Issuers delayed bringing bonds to the market because of a change in the law wherein the Securities and Exchange Commission required ratings agencies to provide written consent for their ratings to be included in registration documents for public deals. The rating agencies did not want to take on additional liability and had declared they would not provide such consent.Taking swift action, the SEC issued a no action letter, essentially permitting new asset-backed bond registration statements to omit credit ratings for a period of six months.Agency MortgagesAgency mortgages were slightly weaker as investors still try to figure out why the expected rash of prepayments has failed to emerge. Risk premiums are 1 basis point wider at 123 basis points over comparable Treasury yields. The coupons that are less likely to be impacted by refinancings, 5% and 5.5%, after a brief bout of selling, gained during the day with prices on both rising back to their opening levels by late afternoon. Fannie's 5% coupon is back at 106-14, close to its opening price.TreasurysTreasury prices dropped Monday as positive global manufacturing data and a string of stronger-than-expected corporate earnings reports sparked a push into riskier assets and away from traditionally safer, but lower yielding, U.S. government debt.The moves come after weeks of less-than-encouraging economic data plagued investors' appetite for risk with many fearing another dip in economic activity looms. That gloomy outlook had contributed to the Treasurys market posting weekly and monthly gains in the previous week.But 'this improvement in equities and risk assets has fixed income on the defensive to start the month,' said strategists at RBS Securities.As of 4 p.m. EDT, the 30-year Treasury was off by 1 19/32 to 4.065%, underperforming the broader market. The two-year note was flat to yield 0.562% and the 10-year was off by 15/32 to yield 2.963%.

2010/08/03 05:40=DJ US Stocks Climb On Manufacturing Data, European Bank Earnings-2-
NEW YORK -U.S. stocks climbed Monday as encouraging data on industrial activity in the U.S. and Europe and better-than-expected earnings from European banks HSBC Holdings and BNP Paribas gave the market a strong start to the month of August.The Dow Jones Industrial Average jumped 208.44 points, or 1.99%, to 10674.38, marking its biggest one-day point gain since July 7 and its biggest one-day percentage rise since July 22. The Dow is now at its highest closing value since May 13.All of the Dow's 30 components ended the session in positive territory, led by Alcoa, which rose 54 cents, or 4.8%, to 11.71, and Exxon Mobil, which climbed 2.26, or 3.8%, to 61.94. The companies were boosted by gains in commodities as hopes for the global economic recovery were boosted by a round of better-than-expected manufacturing and construction data.In the U.S., while U.S. manufacturing sector growth slowed further last month, it didn't fall as much as expected, and is still at a level that indicates growth. Other data showed U.S. construction spending in June unexpectedly rose because of federal stimulus, while overseas, a surge in German production sent euro-zone manufacturing sector growth upward.The Dow's financial components were also strong, with J.P. Morgan Chase up 1.36, or 3.4%, to 41.64, and Bank of America up 40 cents, or 2.9%, to 14.44, following strong earnings from European banks.HSBC Holdings said its profit for the first half of the year doubled, topping analysts' expectations as the bank sharply reduced impairment charges and booked a gain on the value its own debt. BNP Paribas reported a 31% jump in net profit in the second quarter, as strong retail banking operations more than compensated for the fallout from Europe's sovereign debt crisis. American depositary shares of HSBC climbed 2.66, or 5.2%, to 53.74, while U.S. shares of BNP (Nasdaq) jumped 2.50, or 7.3%, to 36.76. HSBC and BNP are not Dow components.'Things have gotten less worse,' said Erick Maronak, senior portfolio manager at Victory Capital Management. He said the earnings from the European banks was 'encouraging because it wasn't too long ago that people were going through their portfolios to figure out 'what's my European exposure.''When combined with the manufacturing and construction data, Maronak said, 'it shows there is economic activity being conducted at a level that was a bit better than anticipated and people are starting to feel better on all fronts.'The Nasdaq Composite rose 40.66, or 1.80%, to 2295.36. The Standard & Poor's 500 index added 24.26, or 2.20%, to 1125.86.

2010/08/03 00:28=DJ Manufacturing Sector Undergoing Fragile Recovery
WASHINGTON -The manufacturing sector is experiencing a fragile recovery although weak employment persists, according to a Joint Economic Committee report released Monday.'The manufacturing recovery is both uneven and fragile,' said Rep. Carolyn Maloney (D., N.Y.), chairwoman of the Joint Economic Committee, which studies and reports on economic conditions to congress. 'We need to be vigilant and we are being vigilant.'The U.S. House of Representatives passed a series of bills last week aimed at bolstering the country's manufacturing sector. The legislation is part of House Democrats' 'Make it in America' agenda, a plan to increase American jobs through manufacturing.Republicans have criticized the plan as a political maneuver, rather than substantive policy.'What is not new is Republicans saying that our policies are simply political and their policies are substantive,' said House Majority Leader Steny Hoyer (D., Md.), on a conference call to discuss the report's findings. 'We have articulated a focus, a strategy, an emphasis on moving America forward.'After more than two years of shrinking employment, the manufacturing sector has expanded consistently in the last six months, adding 136,000 jobs since December 2009. Nearly all of those gains were made in the durable-goods sector, which has been one of the hardest hit by the recession.The report cautioned, however, that now that companies have restocked their inventory and there is a decline in new orders for durable goods, the sector will likely not be adding new workers.The study found that the manufacturing sector has experienced a sustained decline after peaking in 1979, with an intense decline beginning in 2001 and culminating in the loss of 2.7 million jobs from 2006 to 2009.